Summary
The Supreme Court of Texas held that a mineral lease’s defined term “drilling operations” applied to the continuous-drilling-program provision throughout the lease. Because drilling activities other than spudding-in a well satisfied the lease’s definition, the lessee timely maintained the lease as to non-producing tracts. The court reversed the court of appeals in relevant part, rendered judgment for the lessee, and remanded for further proceedings.
Topics
Practice areas
Questions Presented
- Whether the special definition of "drilling operations" in Paragraph 18 applies whenever that phrase is used in the lease, including in Paragraph 7(b)'s continuous-drilling-program provision.
- Whether activities other than spudding-in a new well can satisfy Paragraph 7(b)'s requirement that the lessee timely engage in drilling operations.
- Whether Sundown was required to reassign the contested non-producing tracts because the lease terminated as to those tracts.
Holdings
- Paragraph 18's express definition applies whenever the phrase "drilling operations" is used in the lease, including in Paragraph 7(b). The definition includes drilling, testing, completing, equipping, reworking, fracturing, acidizing, reconditioning, deepening, plugging back, cleaning out, repairing, and testing a well, and is not limited to spudding-in a well.
- Activities other than spudding-in a well were sufficient to maintain the lease as to non-producing tracts because they fell within the lease's defined term "drilling operations." Sundown timely engaged in those operations and therefore maintained a continuous drilling program under Paragraph 7(b).
- The lease did not terminate as to the contested tracts, and Sundown was not obligated to reassign those tracts because its timely drilling operations delayed the reassignment obligation.
Key quotations
“The dissent found the majority’s construction of the lease repugnant to its plain language, observing that “[w]here parties to a contract expressly define a contractual term, the parties’ agreed definition must prevail over other definitions.”” (4)
“When construing a contract, the court’s primary concern is to give effect to the written expression of the parties’ intent.” (5)
“The principle of freedom of contract requires us to recognize that “sophisticated parties have broad latitude in defining the terms of their business relationship,” and courts are obliged to enforce the parties’ bargain according to its terms.” (7)
“Because “drilling operations” in paragraph 7(b) includes other activities in addition to spudding-in a well, and because there is no dispute Sundown timely engaged in those activities, the summary-judgment record conclusively establishes that Sundown was engaged in a “continuous drilling program” within the meaning of Paragraph 7(b).” (9)
Factual background
The parties were successors-in-interest to an oil-and-gas top lease covering approximately 30,450 acres in Ward County, Texas. After the lease's six-year primary term, Sundown was required to reassign tracts not held by production unless it maintained a continuous drilling program under Paragraph 7(b). Sundown timely spudded the first development wells and thereafter engaged in drilling, reworking, fracturing, and other well operations, including drilling fourteen development wells and spending more than $40 million. HJSA contended that the lease terminated as to non-producing tracts because Sundown did not spud-in a new well within 120 days of each prior operation, while Sundown relied on Paragraph 18's broader definition of "drilling operations."
Procedural history
HJSA sued for declaratory relief, quiet title, and an accounting, asserting that the mineral lease terminated as to non-producing tracts because Sundown failed to spud-in new wells within the required periods. The trial court granted Sundown partial summary judgment, concluding that the lease's special definition of "drilling operations" applied and that the lease had not terminated. On permissive interlocutory appeal, the court of appeals reversed in part, holding that Paragraph 7(b) required timely spudding-in of a continuous development well and imposed a special limitation. The Supreme Court of Texas reversed the court of appeals in relevant part, rendered judgment for Sundown on the reassignment issue, and remanded for further proceedings.
Remand instructions
The court of appeals' judgment was reversed in relevant part, judgment was rendered that Sundown was not obligated to reassign the contested parts of the leased premises, and the case was remanded to the trial court for further proceedings.