Community Bank of Raymore, as Trustee or Agent v. Chesapeake Exploration, L.L.C. and Anadarko Petroleum Corp.
416 S.W.3d 750
| Tex. App. | 2013Background
- Oil and gas lease executed Jan 26, 2005 covering ~16,000 acres in Loving County, split into four blocks.
- Block Two had 13 producing wells during the primary term; the deepest producing formation was 5,672 feet deep at term end.
- Primary term ended Jan 26, 2010; CBR sought release of minerals deeper than 5,672 feet; Chesapeake refused.
- CBR claimed the horizontal Pugh clause terminated deep formations at term end due to no paying-quantities production.
- Chesapeake argued continuous development kept the lease alive beyond the primary term; undeveloped acreage remained under continuous-development obligations.
- Trial court held the lease remained in effect in Block Two so long as continuous development continued without lapse.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the horizontal Pugh clause terminate undeveloped deep formations at term end when no paying quantities exist? | CBR: Pugh clause terminates deep formations at term end. | Chesapeake: Pugh never springs due to ongoing continuous development. | Pugh clause did not spring into life; lease remains alive with continuous development. |
| Did the severance clause divisibly treat Block Two, making unit-level development determinative rather than lease-wide? | CBR: severance triggers unit-by-unit termination without continuous development. | Chesapeake: severance not triggered; continuous development keeps lease across units. | Severance clause not triggered; lease-wide continued development controls. |
Key Cases Cited
- Luckel v. White, 819 S.W.2d 459 (Tex. 1991) (construction of unambiguous lease is a question of law)
- Sandefer Oil & Gas, Inc. v. Duhon, 961 F.2d 1207 (5th Cir. 1992) (Pugh clause limits lease to production depth in unit; fosters development)
- Rogers v. Westhoma Oil Company, 291 F.2d 726 (10th Cir. 1961) (Pugh clause scope in horizontal drilling contexts)
- Fisher v. Walker, 683 S.W.2d 885 (Tex.App.--El Paso 1985) (divisibility of lease; Pugh clause viewpoint discussed)
- Guardian Life Ins. Co. of Tex. v. Arant, 180 S.W.2d 906 (Tex. 1944) (approach to conjunctive language in leases)
- Lyons v. Montgomery, 701 S.W.2d 641 (Tex. 1985) (interpretation of 'or' in contractual clauses)
- Fox v. Thoreson, 398 S.W.2d 88 (Tex. 1966) (textual interpretation of lease provisions)