“To spud or not to spud,” that was the question before the Texas Supreme Court in determining whether a lessee, Sundown Energy, maintained a lease on non-producing acreage under the.
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As Humpty Dumpty would have said to Alice if he were Justice Dumpty of the Texas Supreme Court, the term means whatever the parties to an oil and gas lease say it means, neither more nor less. In
The lease
In a lease in Ward County, 19,570 acres from the surface to the base of the Pennsylvanian formation were “Producing Areas”. The remainder covered all depths as to 10,880 acres plus depths in the Producing Areas below the Pennsylvanian. During the primary term, production in paying quantities from anywhere on the leased premises would maintain the entire lease. At the end of the primary term lessee Sundown was required to reassign its rights in each tract not then held by production unless Sundown was engaged in a “continuous drilling program.” The continuous drilling clause in Paragraph 7(b) read:
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Texas Justices Say Drilling Activities Held $40M Lease
Law360 (April 9, 2021, 7:51 PM EDT) The Texas Supreme Court ruled Friday that a mineral estate owner can t snatch back a lease that more than a dozen companies invested $40 million to develop based on new wells not being spudded-in frequently enough, because other activities satisfy the lease s continuous drilling provision.
In a per curiam decision reached without oral argument, the state high court unanimously reversed a divided Eighth Court of Appeals ruling. The lower appellate court had determined that Sundown Energy LP and other lessees failed to retain their top lease on a 30,450-acre tract of land in West Texas under a continuous drilling provision, because.