pjc-oil-and-gas-2022-lib

L ESSOR -L ESSEE I SSUES

PJC 303.12

PJC 303.12 Question and Instruction on Breach of Implied Covenant to Develop QUESTION ______ Did Larry Lessee fail to drill additional wells on the lease that a reasonably prudent operator would have drilled? The lessee has a duty to drill all wells that a reasonably prudent operator would drill under the same or similar circumstances, with a reasonable expecta tion of profit. This duty to drill extends both to already producing formations or strata and also to formations or strata other than the formations or strata from which production is being obtained, but which in reasonable probability exist and are known to be capable of production. A “reasonably prudent operator” means an operator of ordinary prudence acting with ordinary diligence under the same or similar circumstances, having due regard for the interests of both Larry Lessee and Paul Payne . Answer “Yes” or “No.” Answer: _______________ COMMENT When to use. PJC 303.12 should be used when the plaintiff is suing for failure to reasonably develop after production has been obtained from the leased premises. Source of question and instruction. PJC 303.12 is derived from Sun Exploration & Production Co. v. Jackson , 783 S.W.2d 202, 204 (Tex. 1989), and Clifton v. Koontz , 325 S.W.2d 684, 695 (Tex. 1959). Reasonably prudent operator. Under the implied covenant of reasonable devel opment, a lessee is generally obligated to drill whatever wells on the lease that a rea sonably prudent operator would drill. While the lessee can fulfill the duty to reasonably develop the lease by other actions besides drilling, drilling a well is most often the action that the plaintiff claims should have occurred. However, a reasonably prudent operator is not required to drill a well unless there is a reasonable expectation of profit in the drilling. Clifton , 325 S.W.2d at 695. Whether there is a reasonable expectation of profit is usually a matter for expert testimony. In this respect, the devel opment well that the plaintiff alleges should have been drilled is virtually indistin guishable from the “protection well” under the drainage covenant discussed at PJC 303.11; both are wells that a reasonable and prudent operator would have drilled with a reasonable expectation of profit. In the question, the jury is asked about “additional

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