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BP Am. Prod. Co. v. Red Deer Res., LLC

Supreme Court of Texas

January 12, 2017, Argued; April 28, 2017, Opinion Delivered

NO. 15-0569

Opinion

 [*391]  In this case, we must determine whether a jury's finding that a gas well was incapable of production in paying quantities the day after the producer closed the valve, and eight days after the last gas was sold or used, can support a judgment terminating the producer's lease in its secondary term. Because we conclude that the top-lease holder did not obtain a finding that [**2]  the well was incapable of production in paying quantities on the material date under the plain language of the lease, we hold that the producer's lease remains valid without reaching the parties' other issues. Accordingly, we reverse the judgment of the court of appeals and render judgment in the producer's favor.

I. Background

This case involves the shutting-in of the Vera Murray #11 gas well. BP America Production Company owns an oil and gas lease covering approximately 2,113 acres in Lipscomb and Hemphill Counties, Texas (the Vera Murray lease). The lease originated in 1962, and BP has owned and operated the lease since 2000. The lease has a five-year primary term and lasts "as long thereafter as oil, gas or other minerals is produced." In 1986, the lessee drilled three wells in the Upper Morrow formation—the Vera Murray #9, #10, and #11. The three wells initially produced oil but were reclassified as gas wells in 1989. The #9 well was plugged in April 2009, and the parties stipulated at trial that the #10 well (which was plugged in June 2012) was not capable of production in paying quantities without additional equipment or repairs on June 12, 2012—the date BP shut in the #11 well. [**3]  All other  [*392]  previously drilled wells were plugged by 2009. Thus, only the #11 well could have sustained the lease on and after June 12, 2012.

The Vera Murray #11 was a marginal well. By 1994, production from the well was averaging about 200 Mcf per day, but that production gradually declined over the next few years, with the well having several consecutive days without any flow, followed by several days with flow. Production had declined to less than 100 Mcf per day when BP acquired the lease in 2000. By 2009, production had declined to less than 10 Mcf per day.

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526 S.W.3d 389 *; 2017 Tex. LEXIS 410 **; 60 Tex. Sup. J. 813; 2017 WL 1553112

BP AMERICA PRODUCTION COMPANY, PETITIONER, v. RED DEER RESOURCES, LLC, RESPONDENT

Prior History:  [**1] ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE SEVENTH DISTRICT OF TEXAS.

BP America Prod. Co. v. Red Deer Res., LLC, 466 S.W.3d 335, 2015 Tex. App. LEXIS 5052 (Tex. App. Amarillo, May 18, 2015)

CORE TERMS

lease, shut-in, paying quantities, royalty, terminated, capable of producing, cessation, producing, incapable, shut, Questions, royalty clause, lessee, mineral, parties, capability, valve, oil, last day, immaterial, drilling, tendered, ceased, court of appeals, invoked, saving clause, primary term, trial court, twelve-month, measuring

Business & Corporate Compliance, Contracts Law, Types of Contracts, Lease Agreements, Civil Procedure, Appeals, Standards of Review, De Novo Review, Contracts Law, Contract Interpretation, Questions of Fact & Law, Contract Interpretation, Intent, Ambiguities & Contra Proferentem, Energy & Utilities Law, Leases & Licenses, Granting Clauses, Habendum Clauses, Shut In Royalty Clauses, Savings Clauses, Leases & Licenses, Jury Trials, Jury Instructions, Objections, Reviewability of Lower Court Decisions, Preservation for Review