United States: Can Reworking A Saltwater Disposal Well Maintain A Lease?

Last Updated: March 31 2017
Article by Charles Sartain

Should the sufficiency of reworking operations under the cessation-of-production clause of an oil and gas lease be limited to the producing well?  Crystal River Oil and Gas, LLC et al v. Patton was a suit to terminate an oil and gas lease due to cessation of production. The case addressed this question, which you would think had been considered in all the years of lease termination disputes in Texas.

The clause at issue was pretty "standard":

If, ... after discovery of oil, or gas the production thereof should cease from any cause, this lease shall not terminate if Lessee commences additional drilling or re-working operations within sixty (60) days thereafter ... ."

The well produced 2,000 barrels of saltwater for each barrel of oil. The saltwater disposal well servicing the producing well became inoperable in September 2011 and was repaired in late October. The jury was asked whether the defendants failed to commence drilling or reworking operations on the producing well. The lessee complained that the question should have allowed the jury to consider work performed on the disposal well. The court agreed.

Lawyers: Pay attention to the Texas Pattern Jury Charge at PJC 303.16. Others: You need not go to that trouble.

The lease didn't define "reworking operations".  Lessor Patton contended that reading was required by the habendum clause.

Courts in Texas have used this definition for the term:

"... any and all actual acts, work or operations in which an ordinarily competent operator under the same or similar circumstances, when engaged in a good faith effort to cause a well or wells to produce oil or gas in paying quantities."

Williams and Meyers (see §618.1) cites the difficulty in defining the term "because of the many ancillary activities that are required in order to operate an oil and gas well" and concludes that whether any particular operation falls under the definition of "reworking operations" depends upon the facts peculiar to that operation.

Prohibiting the jury from considering operations on the salt water disposal well was reversible error. The result will be a do-over at the trial court with a more expansive jury question.

I know you know this, but to appreciate Chuck Berry you have to listen to his songs as if it is 1956: Something you never heard before. RIP.

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