Mayo Foundation for Medical Education and Research and Latigo Petroleum, LLC v. Courson Oil & Gas, Inc.
2016 Tex. App. LEXIS 11014
| Tex. App. | 2016Background
- In 1994 Barbara Lips leased ~35,000 acres to Alpar; Courson acquired 40% working interest, Latigo 60%; Mayo later acquired the reversionary mineral interest.
- Lease contains an amended habendum clause allowing lessee to "continue this lease in force" by drilling one well every 180 days after the primary term and to "bank time."
- Paragraph 5(g) permits lessee to designate production units that will remain in force so long as production continues in paying quantities or by reworking/drilling within 60 days after cessation.
- Dispute: whether production units automatically terminate individually when they stop producing during the secondary (continuous-drilling) period, or whether the continuous-drilling savings period applies to the entire lease and production units are designated only after that period ends.
- Trial court granted summary judgment for Courson and denied Mayo; Mayo appealed, raising a single issue about the lease construction.
Issues
| Issue | Plaintiff's Argument (Mayo) | Defendant's Argument (Courson) | Held |
|---|---|---|---|
| Proper construction of habendum/retained-acreage provisions | Lease bifurcates treatment of developed vs. undeveloped land immediately after primary term; production units must be maintained individually when they cease producing | Lease provides sequential mechanisms: continuous drilling (or banked time) maintains entire lease during secondary term; after that term ends, lessee designates production units and releases remaining acreage; designated units then survive by production/reworking/drilling | Court adopts Courson’s construction: continuous drilling holds entire lease during secondary period; production units are designated after that period and then can be held by production or reworking/drilling |
Key Cases Cited
- Anadarko Petrol. Corp. v. Thompson, 94 S.W.3d 550 (Tex. 2002) (construction of oil-and-gas lease is question of law; primary task is ascertaining parties’ intent from the lease)
- XOG Operating, LLC v. Chesapeake Expl. L.P., 480 S.W.3d 22 (Tex. App. — Amarillo 2015) (give effect to all lease provisions; rules for construing unambiguous leases)
- Chesapeake Expl., LLC v. Energen Res. Corp., 445 S.W.3d 878 (Tex. App. — El Paso 2014) (retained-acreage clauses typically take effect after continuous-drilling/savings provisions end)
- Cmty. Bank of Raymore v. Chesapeake Expl., LLC, 416 S.W.3d 750 (Tex. App. — El Paso 2013) (production from any part of leased acreage ordinarily holds entire lease)
- Sutton v. SM Energy Co., 421 S.W.3d 153 (Tex. App. — San Antonio 2013) (discussing timing and effect of retained-acreage clauses)