DGC Client Prevails in Continuous-Development Dispute
October 25, 2018 – In a 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.).
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.