On Sept. 2, the Texas Supreme Court granted review in a case that may clarify when a shut-in well’s capacity for production in paying quantities is determined. In BP America Production Company v. Red Deer Resources, LLC, No. 15-0569, the court will be reviewing a ruling from the 7th Court of Appeals (Amarillo) that upheld a judgment terminating a lease on the grounds that it was incapable of production when the last well on the premises was shut-in.
At issue is a 2,113 acre lease taken in 1962 which BP had owned and operated since 2000. By 2009, just one gas well out of the 10 wells drilled on the lease was producing, but only sporadically and at much lower rates than prior months. Red Deer Resources, LLC (Red Deer) had been monitoring production from the well, and recognized that the lease was in danger of lapsing due to its inability to produce in paying quantities. In 2011, Red Deer obtained from the then owners of the minerals top leases that would be enforceable upon the expiration of the BP lease, with plans to drill wells into previously untapped formations. BP had considered developing other formations under the leased premises as production slowed, but BP employees later testified at trial that the “threat of litigation” from Red Deer prevented them from obtaining a partner for the proposed operations. Continue Reading