The Continuous Development Clause
Endeavor Energy Resources, L.P. v. Energen Resources Corporation and John Thomas Quinn 11th Court of Appeals (Eastland) October 25, 2018. No. 11-17-00028-CV.
early spudding of the preceding well could be counted.
Quinn leased 11,302.98 acres in Howard County to OGX who assigned to Endeavor. The lease had a primary term of 3 years with the usual habendum clause but subject to a continuous development clause which allowed Endeavor to retain the entire lease after the primary term if Endeavor continued to drill wells. The lease would terminate as to everything outside of any proration units unless a subsequent well were completed within 150 days after the completion of the preceding well. As with many leases, the lease granted the right to accumulate days not used. If you started a well 145 days from the preceding well, you accumulated 5 days. The accumulation provision reads as follows:
Both the trial court and the Eastland Court of Appeals agreed with Energen. The court focused on the second half of the provision quoted above: “By limiting the use of unused days to the ‘next allowed’ 150-day term, the language of the accumulation provision limits the use of unused days arising from the ‘early’ drilling of one well to be used only to extend the 150-days term for the drilling of the next well” and relied on the dictionary to say that “next” meant the immediately succeeding well, not any subsequent well. The court rejected Endeavor’s construction, which permitted more than a year’s delay in drilling, as conflicting with “the purpose of a continuous- development clause.” This case seems to have turned on the use of the word “next” in the second line of the above quote. Could the scrivener have changed the result by deleting “the next” and substituting “any”?
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.
About the Author:
The use of the accumulated days is what was at issue in this case.
Endeavor drilled its first well 145 days after the expiration of the primary term and proceeded to drill eleven additional wells over the next five years. After completing the 12 th well on December 27, 2014, Endeavor did not spud the next well until November 12, 2015 (320 days). Believing the lease to have expired as to all acreage outside the proration units, Quinn leased to Energen which brought this cause of action. Endeavor calculated that it had accumulated 227 days from the first twelve wells that extended the deadline for the thirteenth well to 377 days (150 + 227). Energen calculated that Endeavor had only earned an additional 36 days from the twelfth well because it was completed 114 days after the eleventh well. Endeavor added up each day it spudded any of the 12 wells early to calculate its extension. Energen said that only the
Martin Gibson P.O. Box 864 Cedar Creek, Texas 78612 512-614-7785 mgibson@GibsonOilGas.com
17
G r o w t h T h r o u g h E d u c a t i o n - O c t o b e r / N o v e m b e r / D e c e m b e r 2 0 1 8
Made with FlippingBook flipbook maker