Lease Maintenance Analysis During the Present Over Production of Oil (2020) in Texas – A Focused Guide
Although not at all unheard of in the history of the U. S. gas market, the worldwide glut of oil is causing, or will be causing, a reassessment of the lease maintenance of oil leases/units in Texas, especially in light of the involuntary shutting in of wells where the oil purchasers, who get their oil via pipelines or tankers, refuse to take any additional oil due to low demand. This low demand is caused in part by the apparent oil production war between Saudi Arabia and Russia coupled with low demand for gasoline and aviation gas due to a significantly lower amount of travel due to the Corona Virus. Following are three articles which look at specific aspects of lease maintenance where wells: (i) are shut involuntarily in some cases, or (ii) forcibly shut-in (to the extent that no purchaser will take the oil) in other cases, or (iii) production is voluntarily or involuntarily curtailed to meet current market demand. The three articles look at three different aspects of lease maintenance given the diminished, if not non-existent oil market depending on the location of the pertinent leases/units.
Specifically:
Article I , Temporary Cessation of Production Doctrine As Applied To A Lack Of A Market , addresses the very limited issue of whether a Texas oil and gas lessee, under an oil and gas lease which does not contain a savings clause dealing with drilling/re-working operations in the secondary term of the lease, may avail itself of the Temporary Cessation of Production Doctrine to maintain its lease(s) while oil production is shut-in due to a lack of a market for the oil.
Article II, The Force Majeure Clause In A Time Of Economic Turndown , reviews the status of the caselaw in Texas addressing the use of ‘force majeure’ as a method of lease maintenance.
Article III, The Precipitous 2020 Oil Price Drop – Risks In the Unilateral Reduction of Lease/Unit Oil Production , reviews the Texas caselaw regarding production in paying quantities so that an impacted Texas lessee can assess what and how much of its lease/unit production can be curtailed BEFORE it risks losing its individual lease(s) and/or the leases comprising a unit. This Guide is limited in coverage as more particularly explained in each of the three articles. It is intended as an introduction to the legal principles regarding each of the three topics. Reliance on any of the principles should only be made after submitting the particular factual setting and principles of law to the reader’s individual attorney and receiving independent advice from such attorney.
© 2020 Terry E. Hogwood About the Author: Terry E. Hogwood is a Texas licensed oil, gas and title attorney who has been in the legal practice for over 47 years. His CV and other background information can be found at his website: terryehogwoodattorney.com.
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