CHAPTER 5 DILIGENT OPERATIONS: AN UNCOMMON PERSPECTIVE OF THE COMMON LAW

• Jurisdiction: United States

Environmental Regulation of the Oil and Gas Industry
(Feb 1993)
CHAPTER 5
DILIGENT OPERATIONS: AN UNCOMMON PERSPECTIVE OF THE COMMON LAW
James M. Colosky
Clanahan, Tanner, Downing & Knowlton, P.C.
Denver, Colorado

I. INTRODUCTION: Fire and thin ice

II. THE COVENANT FOR DILIGENT AND PRUDENT OPERATIONS:

A. The relational context—

1. The prudent operator standard—The standard represents judicial expressions of the basic nature of an oil and gas lessee's obligation to its lessor.

2. The elemental nature of this implied covenant—The relational nature of oil and gas leases is the wellspring for all implied covenants recognized by the courts in oil and gas leases.

B. The covenant described—

1. The covenant for diligent and prudent operations is a "catch-all" covenant, compelling broad duties to perform certain operations and to avoid negligent or otherwise improper management of the leased premises.

2. The covenant presents aspects of both tort liability and contract breach.

III. THE COVENANT IN THE CONTEXT OF ENVIRONMENTAL REGULATIONS:

A. Reasonable surface use—

1. Releases of deleterious materials are part and parcel of the oil and gas industry, but the lessor's right to release such substances is not without limit.

2. Environmental...