pjc-oil-and-gas-2022-lib

PJC 303.11

L ESSOR -L ESSEE I SSUES

Oil Co. v. Stansbury , 410 S.W.2d 187 (Tex. 1967). The implied covenant to protect a lease from drainage extends not only to a localized occurrence across the lease line but also to field-wide drainage. Amoco Production Co. , 622 S.W.2d at 568. Reasonably prudent operator. The reasonably prudent operator is the standard for measuring the lessee’s performance of the duty to protect from drainage. The key issues are the actions the lessor claims the lessee should have taken to protect the lease from substantial drainage and whether those actions could be undertaken by the lessee with a reasonable expectation of profit. See Amoco Production Co. , 622 S.W.2d at 568 (citing Clifton v. Koontz , 325 S.W.2d 684, 695–96 (Tex. 1959)). The Texas Supreme Court noted in Amoco that the duty to protect against drainage encompasses any act a reasonably prudent operator would perform to protect the lease from drainage, includ ing “(1) drilling replacement wells, (2) re-working existing wells, (3) drilling addi tional wells, (4) seeking field-wide regulatory action, (5) seeking Rule 37 exceptions from the Railroad Commission, (6) seeking voluntary unitization, or (7) seeking other available administrative relief.” Amoco Production Co. , 622 S.W.2d at 568. However, none of these duties arises unless “such an amount of oil can be recovered to equal the cost of administrative expenses, drilling or re-working and equipping a protection well, producing and marketing the oil, and yield to the lessee a reasonable expectation of profit.” Amoco Production Co. , 622 S.W.2d at 568.

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