o All evidence showed that the well had been completed by the end of the primary term. However, there had never been production from the well 66
Lessee’s rely on a reworking operations and the production from a second well to continue the lease o Lease terms have reworking provision and cessation clause Analysis: o If production never began, it could not “cease” and by ceasing give the lessee 60 days in which to commence additional drilling o Reworking clause is the saving grace Reworking operations means: actual work or operations which have theretofore been done, being done over, and being done in good faith endeavor to cause a well to produce oil and gas or oil or gas in paying quantities as an ordinarily competent operator would do in the same or similar circumstances. Is there evidence that the reworking were good faith efforts to make the well producing? The court holds that bleeding or “periodic flowing” is included in reworking operations o However, after finding out that the lease was being contested the well was not continued and no production occurred. 67
Thus, the well was not producing after the cessation for reworking and the lease expired Takeaway: o Finding that the well was not a dry-hole worked to the detriment of the lessee because this prevented them from being able to rely on the second well o “thereon” why can’t we impute the meaning of operations from the first sentence to the second sentence because we are a special limitation state we want to tightly construe lease terms o where there is strict language, it will be interpreted strictly What is a dry-hole? Duster or a well that fails to produce in paying quantities? o If so, when is the well completed Force Majeure : superior force that prevents operation/production from occurring Wont operate as production but will toll the requirement for operation Pooling Clause: Modifying the Granting, Habendum, and Royalty Clause o Drilling units in many states are set on the basis of section and quarter section lines and require minimum acreage commitments, which may not coincide with land ownership 68
o Pooling Clause : an oil and gas lease gives a lessee the right to combine small tracts or fractional mineral interests for drilling and apportions production to each interest Because the lessor grants this power to the lessee, and because the lessee must elect to exercise the power, pooling pursuant to a pooling clause is often described as “voluntary” pooling Changes the result that would normally occur under the lease in three ways: a) benefits lessee; b) benefits lessor 1a) expands the lease grant by giving the lessee the power of attorney to pool the lessor’s interests. o Principle/agent relationship Not a fiduciary relationship requiring full- disclosure but a good-faith relationship o Ongoing relationship that makes this difference than a simple contract situation 2a) provides that operations anywhere on a pooled area will have the same effect in maintaining the lease as if they were conducted on the lease itself.
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