pjc-oil-and-gas-2022-lib

L ESSOR -L ESSEE I SSUES

PJC 303.13

PJC 303.13 Lease Termination (Comment) In Texas, the term or habendum clause of a typical oil, gas, or mineral lease pro vides that the lease will last “so long as” there is production from the leased premises. The “so long as” language creates a fee simple determinable interest in the mineral estate in the lessee and a possibility of reverter in the lessor. Natural Gas Pipeline Co. of America v. Pool , 124 S.W.3d 188, 192 (Tex. 2002). The lessee’s possessory interest is “determinable” because it may terminate and revert to the lessor upon the occur rence of conditions specified in the lease. Pool , 124 S.W.3d 188; Stephens County v. Mid-Kansas Oil & Gas Co. , 254 S.W. 290, 295 (Tex. 1923). Courts have addressed the differences between covenants and conditions in oil and gas leases. See Rogers v. Ricane Enterprises , 772 S.W.2d 76, 79 (Tex. 1989); Freeman v. Magnolia Petroleum Co. , 171 S.W.2d 339, 341–42 (Tex. 1943); Blackmon v. XTO Energy, Inc. , 276 S.W.3d 600, 605 (Tex. App.—Waco 2008, pet. denied); Hitzelberger v. Samedan Oil Corp. , 948 S.W.2d 497, 506 (Tex. App.—Waco 1997, pet. denied). Typically, the habendum clause creates two terms: (1) the primary term, which lasts for a set number of years, and (2) the secondary term, which endures as long as there is production. Unless defined otherwise by the lease, the term “production” in the habendum clause means “production in paying quantities.” Clifton v. Koontz , 325 S.W.2d 684, 692 (Tex. 1959). During the primary term, leases frequently provide for the payment of delay rentals, which are due annually. A lessee’s failure to properly pay delay rentals triggers a ter minating condition of the lease. Humble Oil & Refining Co. v. Harrison , 205 S.W.2d 355, 360 (Tex. 1947). At the end of the primary term, a nonproducing lease terminates unless it is perpetuated by a savings clause, which serves as constructive production. Watson v. Rochmill , 155 S.W.2d 783, 784 (Tex. 1941); see also Krabbe v. Anadarko Petroleum Corp. , 46 S.W.3d 308, 315 (Tex. App.—Amarillo 2001, pet. denied). Typi cal savings clauses include the following: 1. dry hole clauses: these clauses save a lease if, after having drilled a dry hole, the lessee begins drilling or reworking operations within the time specified in the lease; 2. operations clauses: these clauses save a lease if the lessee has com menced operations before the end of the primary term; two types of operations clauses are common: a. a “well completion” clause, which requires the lessee to complete the same well it commenced before the end of the primary term, and b. a “continuous operations” clause, which saves the lease even if the lessee commences an additional well; 3. cessation of production clauses: these clauses save a lease if the operator commences additional drilling or reworking within a specified number of days after production has ceased;

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