Chapter 9-23 Oil and Gas Litigation—Implied Covenant to Further Explore

• Jurisdiction: United States

9-23 Oil and Gas Litigation—Implied Covenant to Further Explore

9-23:1 Overview

In some jurisdictions, a lessee can be sued for not further exploring the leasehold for oil and gas within a reasonable time.¹⁰⁶ The covenant is based on the principles of promoting development and preventing delay. In jurisdictions that recognize the covenant, the lessee is under a duty to test and to explore other areas of the leasehold or risk cancellation of the lease. However, Texas courts have held that there is no implied covenant to further explore that exists independent of the implied covenant of reasonable development.¹⁰⁷

9-23:1.1 Related Causes of Action

Breach of the Implied Covenant to Reasonably Develop

MUST READ CASES

Sun Expl. & Prod. Co. v. Jackson, 783 S.W.2d 202 (Tex. 1989)

Clifton v. Koontz, 325 S.W.2d 684 (Tex. 1959)

9-23:2 Expressly Rejected in Texas

Texas courts recognize an implied covenant to reasonably develop the premises after production begins.¹⁰⁸ The covenant to reasonably develop requires a lessee to conduct further development with reasonable diligence.¹⁰⁹ The Texas Supreme Court has held that there is no implied covenant to further explore that is distinct from the implied covenant to reasonably develop. While the lessee has the right to further explore, the lessee is not under a duty to further explore.¹¹⁰

--------

Notes:

^[106] Davis v. Ross Prod. Co., 910 S.W.2d 209, 213 (1995) (finding that an implied covenant exists such that the lessee must explore the property with reasonable diligence).

^[107] Sun Expl. & Prod. Co. v. Jackson, 783 S.W.2d 202, 204 (Tex. 1989).

^[108] Clifton v. Koontz, 325 S.W.2d 684, 693-94 (Tex. 1959).

^[109] Clifton v. Koontz, 325 S.W.2d 684, 693-94 (Tex. 1959).

^[110] Clifton v. Koontz, 325 S.W.2d 684, 696-97 (Tex. 1959).