SUMMARY - Under BP America Prod. Co. v. Laddex, Ltd., 513 S.W.3d 476 (Tex. 2017), it now appears clear that the finder of fact should be allowed to review all of the evidence and make its determination what period of time it, as the finder of fact, finds is the reasonable period of time for PPQx purposes. What is key in this case, as well as the other identified cases in this section, is that for the time period to be reasonable it must be of sufficient length to give to the finder of fact a true and reasonable production picture of both revenues and expenses.
trial court to evaluate the PPQx issue in accordance with the standard set out in the Clifton Case – no time period limitation in the jury instruction for determining the PPQx issue.
Texas courts have ruled upon the following time
frames as reasonable under the circumstances:
a. 1.
Six (6) months ( Patton v. Rogers , 417 S.W.2d 470 (Tex.App. – 1967, ref ’d n.r.e.))
a. 2.
PART II of the PPQx Test– General Principles
Seven (7) months ( M. K. Bales v. Delhi- Taylor Oil Corp., 362 S.W.2d 388 (Tex.App. – 1962, ref ’d n.r.e.))
The PPQx test, as set out above, usually involves an initial fact determination whether, over a reasonable period of time, lease/unit expenses were exceeded by revenues (as those terms are above defined) thus yielding a profit to the lessee, however small and even if the costs of drilling will never be recouped. If the lease/ unit yields a profit during the time period determined to be reasonable under the circumstances, the lease is deemed to be producing oil/gas in paying quantities as a matter of law ( Clifton v. Koontz , 325 S.W. 2d. 684 (Tex. 1959)). If profitability over the reasonable time period is negative, all is not lost for the lessee. There is a second part of the PPQx test that a lessor must also negative which was initially added by the case of Clifton v. Koontz , 325 S.W. 2d. 684 (Tex. 1959). A lessor has the burden of showing that a reasonably prudent operator not have continued to operate the lease/ unit well(s) for the purpose of making a profit but rather operated same for purely speculative purposes during the period of time deemed appropriate in the case. ( Cannon v. Sun-Key Oil Co., Inc., 117 S.W.3d 416 (Tex.App. — 2003); Dreher v. Cassidy Ltd. Partnership , 99 S.W.3d 267 (Tex.App. — 2003)) The case of BP America Prod. Co. v. Red Deer Res., LLC , 66 S.W.3d 335 (Tex.App. - 2015), reversed in BP America Production Co. v. Red Deer Resources, LLC, 526 S.W.3d 389 (Tex. 2017), contains a very good definition of the term “speculation” as that term is used in Part II of the PPQx test: “You are instructed that the term “ speculation” used in this question and instruction does not refer to the inherently speculative nature of the oil and gas business. Instead, as used here operating
a. 3.
Nine (9) months ( Fick v. Wilson, 349
S.W.2d. 622 (Tex.App. – 1961))
a. 4.
Thirteen (13) months ( Ballanfonte v. Kimbell , 373 S.W.2d 119 (Tex.App. – 1963, ref ’d n.r.e.))
a. 5.
Sixteen (16) months ( Clifton v. Koontz ,
325 S.W. 2d. 684 (Tex. 1959))
a. 6.
Seventeen (17) months ( Morgan v. Fox,
536 S.W.2d 644 (Tex.App. — 1976))
a. 7.
Twenty-four (24) months ( Pshigoda v. Texaco, Inc., 703 S.W.2d 416 (Tex.App. — 1986))
The case of Pshigoda v. Texaco, Inc., 703 S.W.2d 416 (Tex.App. — 1986) throws a legal wrench into the question of what is a reasonable time period to be utilized to calculate whether a lease/unit is producing in paying quantities. In this case, the court allowed the submission of evidence on two entirely different time periods – (i) Time Period I encompassed the two years immediately preceding the filing of the suit and (ii) Time Period II encompassed a little over a year when the litigation was pending. The court found both time periods reasonable. Obviously, the question arises, with no clear legal answer, which time period was legally correct OR did evidence for both time periods have to be submitted to the jury for review and determination of the reasonable time period upon which the jury would base its decision.
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G r o w t h T h r o u g h E d u c a t i o n - A p r i l / M a y / J u n e 2 0 2 0
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