Oil and Gas Lawyer Blog
Yesterday the Texas Supreme Court denied a petition in one case and granted a petition in the other, both dealing with provisions in oil and gas leases.
The Court denied Chesapeake’s petition in Chesapeake v. Bell, construing an express drainage offset clause in Bell’s lease. The San Antonio Court of Appeals’ decision in favor of Bell stands – for now. The case goes back to the trial court for trial on the merits. I wrote about the Court of Appeals’ decision here.
The Supreme Court granted Endeavor Energy’s petition for review in Endeavor Energy Resources v. Energen Resources, No. 18-1187, dealing with a continuous drilling provision in a lease retained acreage clause.
Endeavor owned an oil and gas lease on 11,303 acres of land in Howard County from John Thomas Quinn. The retained acreage clause allowed the lessee to retain all acreage after the primary term as long as no more than 150 days elapse between the completion of one well and the commencement of the next well. Endeavor drilled 12 wells, but then waited 300 days to spud the next well. Quinn then leased the acreage not earned by Endeavor’s 12 wells to Energen. This suit ensued.
Endeavor claimed it had the right to extend the time to drill the 13th well under the following provision:
Lessee shall have the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the drilling of a subsequent well.
Endeavor argued that this provision allowed it to accumulate unused days over the course of the continuous-development program and use those accumulated days as needed. Quinn and Energen argued that Endeavor was only permitted to extend the 150-day term for the days unused from the immediately preceding well.
The Eastland Court of Appeals agreed with Energen. Endeavor could only use the unused days accumulated from the preceding well to extend the next 150-day term by which a well must be commenced.