Bp America Production Company v. Red Deer Resources, Llc, 526 S.W.3d 389

BP held a 1962 oil-and-gas lease (Vera Murray) covering ~2,113 acres; only the Vera Murray #11 well remained potentially productive by June 2012.
The #11 well was marginal and intermittent; it produced small volumes (10 Mcf on June 4, 2012) and then had an eight-day no‑flow period. BP closed the valve on June 12 and tendered shut‑in royalty checks dated June 13, 2012.
The lease contained (1) a 60‑day cessation‑of‑production savings clause and (2) a shut‑in royalty clause that preserves the lease if an annual shut‑in payment is tendered within twelve months after the last day gas is “sold or used.”
Red Deer (top‑lessor) sued more than 60 days after the valve was closed, alleging (A) failure to produce in paying quantities through June 12 and (B) total cessation such that the shut‑in clause did not apply because the well was incapable of producing in paying quantities when shut in (jury question keyed to June 13).
The jury found no failure to produce in paying quantities through June 12 but found the #11 well incapable of producing in paying quantities when shut in on June 13. The trial court entered judgment terminating the lease; the court of appeals affirmed.
The Supreme Court of Texas reversed: it held the shut‑in clause measures capability as of the last day gas was sold or used (June 4), not the date of tender or the day after valve closure (June 13), and Red Deer failed to obtain a finding on that operative date.

Issue	Plaintiff's Argument (Red Deer)	Defendant's Argument (BP)	Held
Proper measuring date for whether shut‑in clause applies	Capability should be measured on the date BP invoked shut‑in rights / date shown on checks (June 13)	Capability is measured on the date gas was last sold or used (operative date in clause: June 4)	Held: Measure capability as of last day gas was sold/used; June 4 (or May) is the operative date
Whether shut‑in payment preserved lease	Shut‑in payment was ineffective because well was incapable when shut in (jury found June 13 incapability)	Tender within 12 months after last sale/use preserves lease if the well was capable on that last sale/use date	Held: Red Deer failed to prove incapability on the operative date, so shut‑in tender preserved the lease
Validity of submitting jury questions tied to June 13	Submission was proper to test whether shut‑in clause was negated	Submission was improper because it did not track the lease’s measuring date and was immaterial given constructive production	Held: Submission of Questions 3 & 4 (June 13) was improper/immaterial and cannot support judgment terminating the lease
Burden to negate shut‑in clause	N/A — Red Deer bore burden to prove shut‑in rights were invalid	N/A — BP argued plaintiff failed to carry burden	Held: Red Deer had burden to show well was incapable on the operative date and failed to obtain that jury finding; judgment reversed in BP’s favor

Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002) (lease construction and ‘‘capable of producing in paying quantities’’ standard)
Hydrocarbon Mgmt., Inc. v. Tracker Expl., Inc., 861 S.W.2d 427 (Tex. App.—Amarillo 1993) (discussion of shut‑in royalty clauses and capability test)
Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959) (framework for assessing production in paying quantities over a reasonable period)
Samano v. Sun Oil Co., 621 S.W.2d 580 (Tex. 1981) (effect of lease cessation‑of‑production clauses)
Gulf Oil Corp. v. Southland Royalty Co., 496 S.W.2d 547 (Tex. 1973) (habitendum clause and determining lease termination)