Clopton Rogers v. Osborn
261 S.W.2d 311, 2 Oil & Gas Rep. 304, 152 Tex. 540 (1953)
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Rule of Law:
When an oil and gas lease's savings clause extends the term so long as 'operations' are prosecuted, and the lessee is engaged in such operations on a specific well at the expiration of the primary term, the 'operations' refer exclusively to the work on that well. The commencement of a new well after the primary term does not satisfy this type of clause, and the lease terminates if the original operations cease without resulting in production.
Facts:
- W. B. Osborn and others (Lessees) held an oil and gas lease with a primary term set to expire on September 21, 1947.
- Before the primary term expired, Lessees commenced drilling Well No. 1 and discovered gas, but the well never achieved marketable production.
- On September 21, 1947, when the primary term expired, Lessees were conducting 'periodic flowing' or 'bleeding' operations on Well No. 1 in an effort to clean it out and make it productive.
- Lessees later performed 'work over' operations on Well No. 1, which they ceased on November 29, 1947; these efforts never resulted in production from Well No. 1.
- After the primary term had expired, but before a lawsuit was filed on January 2, 1948, Lessees commenced drilling a separate well, Well No. 2, on the same lease, which ultimately did result in production.
Procedural Posture:
- The Lessors sued the Lessees (W. B. Osborn et al.) in a Texas trial court, seeking a judgment declaring the oil and gas lease terminated.
- After a jury trial resulting in findings on special issues, the trial court rendered judgment for the Lessees, upholding the lease.
- The Lessors, as appellants, appealed the decision to the Texas Court of Civil Appeals.
- The Court of Civil Appeals affirmed the trial court's judgment in favor of the Lessees (appellees).
- The Lessors, as Petitioners, were granted a review of the case by the Supreme Court of Texas.
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Issue:
Under an oil and gas lease's savings clause, which extends the term if the lessee is engaged in 'drilling or re-working operations' on a non-producing well at the end of the primary term, does the subsequent drilling of a new, separate well constitute a continuation of those 'operations' sufficient to prevent the lease from terminating?
Opinions:
Majority - Mr. Justice Wilson
No. The drilling of a new well after the expiration of the primary term does not satisfy a continuous operations clause that is triggered by ongoing work on a specific well. The lease's savings clause contains two distinct sentences for different situations. The second sentence, applicable here, allows the lease to continue 'so long as operations are prosecuted' on the well being worked on at the end of the primary term, and 'if they result in production'. The term 'operations' in this context is limited to the original undertaking and does not encompass commencing 'additional drilling' on a new well, a right only granted under the first sentence of the clause which applies to dry holes or cessation of prior production. Because the reworking operations on Well No. 1 ceased on November 29, 1947, without yielding production, the lease terminated on that date. The drilling of and production from Well No. 2 cannot be 'tacked' on to save the lease.
Dissenting - Mr. Justice Culver
Yes. The term 'operations' in the savings clause should be construed more broadly to include any diligent effort to achieve production, including the drilling of a new well. The lessor's primary interest is the diligent prosecution of work to obtain production, making it inconsequential whether that production comes from reworking the original well or drilling a new one, so long as there is no cessation of activity for more than thirty days. Therefore, the drilling of and production from Well No. 2 should have been sufficient to maintain the lease.
Analysis:
This decision narrowly interprets the language of a common oil and gas lease savings clause, establishing a strict separation between a 'dry hole/cessation of production' clause and a 'continuous operations/well completion' clause. It solidifies the principle that under a continuous operations clause, the specific operation underway at the primary term's expiration must be the one that is continuously prosecuted and ultimately results in production. The ruling prevents lessees from using ongoing work on one well as a basis to hold the lease while starting a completely new well after the primary term, thereby emphasizing the importance of precise drafting and limiting the lessee's flexibility after the primary term expires.
