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What Constitutes “Reworking Operations” under an Oil and Gas Lease?

Last December, the Eastland Court of Appeals issued its opinion in Crystal River Oil & Gas, LLC v. Patton, No. 11-15-00217-CV. Crystal River owned and operated wells on an oil and gas lease in Stonewall County. The oil wells on the lease produced twenty barrels of salt water for every barrel of oil, and Crystal River operated a disposal well on the lease to handle the salt water. The disposal well broke down, and while Crystal River was repairing the well it shut in its oil wells for more than sixty days. Robert Patton noticed the gap in production and obtained an oil and gas lease covering the same lands, based on his claim that Crystal River’s lease had terminated. Patton sued Crystal River to establish his title.

The oil and gas lease provided that, if after the primary term production should cease, “this lease shall not terminate if Lessee commences additional drilling or reworking operations within sixty days thereafter …” and thereafter re-establishes production. The case was submitted to the jury, which was asked:

Did the Defendants fail to commence drilling or reworking activities on the producing wells in question within 60 days after the wells ceased to produce oil and gas?

You are instructed that reworking operations means any and all actual acts, work, or operations in which an ordinarily competent operator under the same or similar circumstances would engage in a good faith effort to cause a well or wells to produce oil or gas in paying quantities.

The jury answered “no.” Crystal River appealed.

The court of appeals reversed and remanded, holding that the jury question was improper because it limited “reworking operations” to activities “on the producing wells.” There was no definition of reworking operations in the lease. The court concluded that, “In the absence of a restriction in the lease that only work performed on the producing wells constitutes reworking operations, we conclude that the trial court abused its discretion by limiting the jury question to only work performed on the producing wells.”

Many cases have arisen disputing the meaning of “reworking operations” in an oil and gas lease. Does repairing a pipeline constitute reworking operations? Continuous or periodic swabbing of a well? Negotiating a new gas contract?

To avoid such disputes, a definition of reworking operations should be included in the lease. Here is a definition I use:

The term “Reworking Operations” shall mean actual work in the hole of a well previously completed as a producer, in a good and workmanlike manner, prosecuted with reasonable diligence, in an attempt to recomplete or repair said well to return it to production or to enhance production.  “Reworking Operations” shall not include swabbing of a well or applying soap sticks or other chemical treatment to increase or restore production.

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