Co-author Chance Decker
You’ve seen the headlines. The portrait is complete; the verdict is in; the clock has run down to zero. The devastation of Harvey is “unprecedented” and it’s all because of climate change. That’s not necessarily so, thanks to Powerline and Dr. Roy Spencer. Read it and reach your own conclusion.
And now, on to the the law
Apache Deepwater, LLC v. Double Eagle Development, LLC asked whether a retained acreage clause provided for “rolling terminations” after the primary term or “snapshot termination”. As you might expect, the result depended on the language of the lease.
Apache’s predecessor leased a 640 acre tract in Regan County, Texas. The lease was divided into four 160 acre proration units. Each unit had one producing well at the end of the primary term; three of the wells eventually ceased to produce.
Double Eagle took a lease covering the three non-producing units and demanded Apache to execute releases. Apache refused, contending production from the one well in the producing unit held the entire 640 acre tract. Litigation ensued.
The crux of the dispute was the interplay between the habendum and retained acreage clauses. The habendum clause was standard:
TO HAVE AND TO HOLD … for a term of three (3) years . . . and as long thereafter as oil, gas or other hydrocarbons . . . are produced . . . .
The retained acreage clause:
Notwithstanding anything to the contrary in the foregoing, Lessee covenants to release this lease after the primary term except as to each producing well on said lease, operations for which were commenced prior to or at the end of the primary term and the proration units as may be allocated to said wells . . . .
Apache contended this clause provided for “snapshot termination”—i.e., a single point-in-time evaluation at the end of the primary term as to whether each proration unit was maintained. Because each of the four proration units had a producing well in it on that date, the retained acreage clause did not apply.
Double Eagle contended the clause was for “rolling terminations”. The lease would expire as to any proration unit that did not have a producing well or continuous operations leading to a producing well within it at any time after the expiration of the primary term.
Read the words of the document
The snapshot prevailed. The habendum clause unambiguously provided the entire 640 acre tract would be held by production from any well within its boundaries. For the retained acreage clause to modify the habendum clause and provide for rolling terminations, it had to contain “clear, precise, and unequivocal language” expressing a “clear intent” to do so. That clause had no such language.
Though the retained acreage clause allowed the lessor to demand a release at any time “after the primary term”, not “at the expiration of the primary term,” it still limited Apache’s release obligation to acreage not within a proration unit with a producing well or continuous operations “prior to or at the end of the primary term.” Thus, it did not contain “clear, precise, and unequivocal” language providing for rolling terminations.
The snapshot wins out over the rolling termination, at least in the law.