The Texas Eleventh Court of Appeals decided yet another “continuous development” case in which the lessee tries to wiggle out of its obligations under the oil and gas lease with a strained interpretation of the lease terms (although in this case, both the lessor and the lessee were oil companies).
In Endeavor Energy Resources, L.P. v. Energen Resources Corporation, the oil and gas lease contained a continuous development clause that said:
If this lease is extended as to non-dedicated acreage beyond the expiration of the primary term hereof, this lease shall terminate as to non-dedicated acreage one hundred fifty (150) days after the expiration of the primary term unless during such one hundred fifty (150) day period Lessee has commenced operations for the drilling of a well in which case this lease shall be extended as to the dedicated and non-dedicated acreage so long as operations for the drilling of a subsequent well are commenced within one hundred fifty (150) days after the completion of the preceding well. This lease shall terminate as to all non-dedicated acreage any time a subsequent well is not commenced within one hundred fifty (150) days from the completion of a preceding well.
The lease also provided that “lessee shall have the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the drilling of a subsequent well.”
The lessor asserted that the language meant what it said. In other words, unused days in any one 150 day term could be added only to the next 150 day term, but not to continuous development terms after that. The lessee argued that it should be able to accumulate unused days in each continuous development term and use them for any subsequent terms. The stakes were high: the failure of the lessee to abide by the continuous development language would result in the termination of the lease.
The Court decided in favor of the plain language of the lease and held the “…the accumulation provision imposed a special limitation with which Endeavor did not timely comply.”