DGC Client Energen Resources Prevails in Continuous-Development Dispute
In a large dispute over leasehold rights to acreage in Howard County, Texas, the Eastland Court of Appeals adopted DGC client Energen Resources Corporation’s construction of a “150-day continuous development” clause. See Endeavor Energy Resources, L.P. v. Energen Resources Corp., No. 11-17-00028-CV, 2018 WL 5290040 (Tex. App.—Eastland Oct. 25, 2018, no pet. h.).
Energen leased approximately 11,300 acres of land in Howard County more than 300 days after the prior lessee, Endeavor Resources Corp., ceased continuous-drilling operations on the leased lands. But just eight days after Energen filed suit to recognize the validity of its lease, Endeavor spudded a new well on the acreage, claiming that it had met the terms of the “150-day continuous development” clause.
The lease required rigorous continuous-drilling operations in the secondary term. Specifically, the lease required that the lessee begin operations to drill a new well within 150 days after completing the previous well. If the lessee did not begin operations to drill a new well in that time period, the lease would terminate as to all undeveloped acreage. However, the lease allowed the lessee to “accumulate unused days in any 150-day term … in order to extend the next allowed 150-day term.”
Energen construed the clause as permitting the lessee to use extra days from one term to extend the next term, but Endeavor construed the clause as permitting the lessee to use extra days from one term to extend any future term. Based on the plain language of the clause, the Court agreed with Energen.