Last summer, we wrote about an interesting case involving offset wells and covenants (both implied and express) to prevent drainage in shale formations. As discussed in our earlier article, the San Antonio Court of Appeals reversed summary judgment for Murphy Exploration and remanded the case back to the trial court. However, the Texas Supreme Court recently reversed that decision on a close 5-4 decision. See Adams v. Murphy Exploration & Production Co.- USA, Case No. 16-0505 (Tex. 2018). You can read the dissenting opinion here.
At issue was whether Murphy Exploration violated its lease with the plaintiff landowners by drilling an offset will that was drilled 1,800 feet away from the pertinent lease line and 2,100 feet from the triggering well on the neighboring property.
The oil & gas lease between the parties required the drilling of an offset well if a producing well was drilled on a neighboring tract. A well was drilled on a neighboring tract and Murphy Exploration then drilled a new well on the leased tract, which it claimed was the required offset well. As noted, the new well was 2,100 feet from the neighbor’s wellhead and 1,800 feet from the property line. In many cases, a well so far from the neighboring well would not have prevented drainage to the neighboring well. The plaintiff did not believe it did, and brought suit claiming that the well drilled by Murphy Exploration did not constitute an “offset well” as that term is defined and understood in the gas and oil industry. The lease between the parties did not define the term “offset well.”