Chesapeake Exploration, L.L.C. v. Energen Resources Corp.
445 S.W.3d 878
| Tex. App. | 2014Background
- Two 1976 oil and gas leases cover Section 25, Ward County, Texas, and are pooled with an adjacent Section 18 to form two pooled 640-acre units.
- Cadenhead No. 1 Pooled Gas Unit (80 acres of Section 25 with 560 acres of Section 18) has produced gas continuously since 1978; Cadenhead No. 2 Pooled Gas Unit (560 acres of Section 25 with 80 acres of Section 18) designated Section 25 as the proration unit for its well.
- Continuous development clauses require drilling or termination of the lease; no new wells on the leased premises after 1979, and the No. 2 well was abandoned in 1988.
- The retained acreage clause carves out acreage retained if there exists a well capable of producing in commercial quantities within the designated proration unit when continuous development ceases.
- Energen (plaintiff) and Chesapeake (defendant) disagree on the scope of retained acreage: Energen says all of Section 25 remains if any unit has a producing well; Chesapeake says only the specific nonproducing acreage within the unit reverts.
- Trial court granted Energen’s summary judgment; the court of appeals affirms, holding no rolling termination and that production anywhere on the leased or pooled acreage maintains the entire lease under the retained acreage clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the retained acreage clause create rolling termination of non-producing units? | Energen: retained acreage lasts if a unit has a well capable of producing; no rolling termination. | Chesapeake: clause applies to all lands and ends units as they cease producing. | No rolling termination; retained acreage preserves the lease for whole section/unit with a capable well when development ceases. |
| Does production on any part of a pooled unit maintain the entire lease? | Energen: yes, pooled production maintains all lands covered by the lease. | Chesapeake: no, only producing units retain leased acreage. | Yes, production on any part of the pooled acreage maintains the lease for all lands described in the lease. |
Key Cases Cited
- Nafco Oil & Gas, Inc. v. Tartan Res. Corp., 522 S.W.2d 703 (Tex. Civ. App.—Corpus Christi 1975) (retained acreage clause operates once when continuous drilling ceases; production on other tracts does not extend the lease)
- Humphrey v. Seale, 716 S.W.2d 620 (Tex. App.—Corpus Christi 1986) (retained acreage clause not interpreted as continual relinquishment absent clear language)
- Lettermann, Texaco, Inc. v. Lettermann, 343 S.W.2d 726 (Tex. Civ. App.—Amarillo 1961) (pooled clauses should be construed to give effect to pooling language)
- Ridge Oil Co., Inc. v. Guinn Inv., Inc., 148 S.W.3d 143 (Tex. 2004) (habendum clause extends so long as production occurs anywhere on the leased property)