pjc-oil-and-gas-2022-lib

L ESSOR -L ESSEE I SSUES

PJC 303.24

PJC 303.24 Question and Instruction on Determining Whether Well Qualifies as Shut-In Well QUESTION ______ Was the shut-in well on the leased premises [ or lands pooled therewith ] capable of producing [ oil/gas ] in paying quantities? “Capable of producing in paying quantities” means: 1. the well, when turned on, does not need additional equipment, repairs, or pipeline facilities to produce and market oil or gas; and 2. over a reasonable period of time, the proceeds from the mineral produced by the well can generate a profit, however small, over current operating expenses, without regard to whether those profits ever repay the COMMENT When to use. PJC 303.24 should be used when there is a dispute regarding whether the well or wells in question were capable of production for purposes of the shut-in clause. The instruction should be conformed to the language of the lease in issue and to the relevant time that the well ceased to produce. Source of question and instruction. PJC 303.24 is derived from BP America Production Co. v. Red Deer Resources, LLC , 526 S.W.3d 389 (Tex. 2017); Anadarko Petroleum Corp. v. Thompson , 94 S.W.3d 550, 558 (Tex. 2002) (citing Hydrocarbon Management, Inc. v. Tracker Exploration, Inc. , 861 S.W.2d 427, 434 (Tex. App.— Amarillo 1993, no writ)), and Clifton v. Koontz , 325 S.W.2d 684, 690–91 (Tex. 1959). Capable of producing in paying quantities. Unless the lease provides other wise, a mineral lease that does not have a well capable of producing in paying quanti ties may not be perpetuated merely by payment of shut-in royalties. Red Deer Resources, LLC , 526 S.W.3d at 396–98; Hydrocarbon Management, Inc. , 861 S.W.2d at 432–33; Kidd v. Hoggett , 331 S.W.2d 515, 519 (Tex. App.—San Antonio 1959, writ ref’d n.r.e.); see also Peveto v. Starkey , 645 S.W.2d 770, 771 (Tex. 1982) (citing Archer County v. Webb , 338 S.W.2d 435 (1969)); EnerQuest Oil & Gas v. Plains Exploration & Production Co. , 981 F. Supp. 2d 575, 587 (W.D. Tex. 2013). “Capable of producing” means that the well will produce in paying quantities if the well is turned “on” and it begins flowing, without additional equipment or repair. Red Deer original drilling costs. Answer “Yes” or “No.” Answer: _______________

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