Chesapeake Exploration L.L.C. v. Energen Resources, 455 S.W.3d 878 (Tex. App. - El Paso, 2014)

Court held that the retained acreage clause in an oil and gas lease would only work to terminate the acreage not included in a unit when continuous development ceased and would not work to later terminate the lease if one unit ceased to be in effect.  The lease did not contain a Pugh clause.

The case was over a lease to a 640-acre tract, Sec. 25, which contained a clause allowing pooling.  560 acres of Sec. 25 was pooled with 80 acres of Sec. 18 to form one unit and 560 acres of Sec. 18 was pooled with 80 acres of Sec. 25 to form another unit.  Production ceased on the first unit after the expiration of the primary term.  The lease contained the following continuous drilling provision:

“[E]ach proration unit established under ... [the] rules and regulations [of the RRC ...] upon which there exists (either on the above described land or on lands pooled or unitized therewith) a well capable of producing oil and/or gas in commercial quantities ....”

Chesapeake argued that the above clause meant that the 560 acres included in the unit that terminated also expired.  Energen argued that the provision only worked at the conclusion of the primary term and any acreage then included within a pooled unit would continue regardless of the fact that the unit ceased to exist due to the plugging and abandonment of the well producing on the unit.  The court agreed with Energen that the provision only operated once the primary term of the lease expired.