Oil and Gas Lawyer Blog
I am sometimes asked to evaluate whether a lease has terminated for failure to produce in paying quantities. It is not an easy question to answer. So here is a summary of how “paying quantities” are determined.
Basic Rules
When an oil and gas lease provides it will remain in effect after the primary term as long as oil or gas is produced from the leased premises, the law presumes that such production must be in “paying quantities.” The lease is entered into for the parties’ mutual benefit. If the lessee is no longer reaping a benefit because expenses exceed income, “the lessors should not be required to suffer a continuation of the lease after the expiration of the primary period merely for speculation purposes on the part of the lessees.” Garcia v. King, 164 S.W.2d 509 (Tex. 1942)