REAL PROPERTY: Oil and gas lease interpreted that “commencing” a well did not mean re-establishing an existing well on the property: HEEL V. CHADWICK (COA 3/14/2008)

REAL PROPERTY:  Oil and gas lease interpreted that "commencing" a well did not mean re-establishing an existing well on the property
DATE RENDERED: 3/14/2008

This was a combined appeal interpreting language in an oil and gas lease from the Fraser sisters which included the condition that “[i]f no well be commenced on said premises on or before the 1[sic] day of July 2005 this lease shall terminate as to both parties.”  In addition, the property was landlocked so obtaining access to their landlocked property was as important as tapping the oil reserves under it. So, as consideration, the lease agreement included the provision that, “[i]nstead of upfront money for lease, Cody Heer will attempt to get permanent right of way, 20 foot [sic] wide.”

This was not the first time the Fraser sisters leased the property. Approximately 10 to 15 years earlier, East Fork Crude had rights to, and did successfully, extract oil and gas. For part of that leasehold period, East Fork Crude traversed an adjoining property with the permission of the owner, Robert Chadwick. But the withdrawal of Chadwick’s permission caused East Fork Crude to end its lease.

COA held that the lessee did not commence a well within the time period.  Having maintenance performed on an existing well that was sufficient to re-establish well and effectuate the successful extraction of commercial quantities of crude oil from the well did not comply with the lease’s requirement that he “commence a well,” as lessee neither drilled existing well deeper or wider, nor did he produce commercial quantities of oil from that well for the first time.

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