152 Grinnell v. Munson

Wednesday, September 2nd, 2015

Richard F. Brown

The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.

In the case of Grinnell v. Munson1, the court considers the evidence required to show lease termination when the habendum clause provides that the term is for so long as there is a well “capable of producing oil and/or gas in paying quantities.”2 Most habendum clauses in oil and gas leases in Texas provide that the lease continues as long as oil or gas is produced in paying quantities. However, the less common clause in the lease at issue in this case provided that the lease shall continue as long as a well on the covered land is capable of producing oil and/or gas in paying quantities.

This language is similar to the language recently considered in Anadarko Petroleum Corp. V. Thompson,3 which recited that the lease would continue as long as gas “is or can be produced.” The court stated that “[t]he phrase ‘capable of production in paying quantities’ means a well that will produce in paying quantities if the well is turned ‘on,’ and it begins flowing, without additional equipment or repair.”4 In other words, “a well is capable of production if it is capable of producing in paying quantities without additional equipment or repairs.”5 The court relied heavily on this precedent and evaluated the proof that was presented to show lease termination. The evidence presented showed a complete cessation of production for over eighteen months. However, there was no evidence to support a finding that the wells on the lease during the time production ceased were not capable of producing in paying quantities without additional equipment or repairs if the wells were turned on.6 This finding highlights the different form of proof required to show lease termination under a “capable of producing” habendum clause.

1137 S.W.3d 706 (Tex. App.–San Antonio 2004)          ).

2Id. at 715.

394 S.W.3d 550, 555 (Tex. 2002).

4Id. at 558.

5Id.

6Grinnell, 137 S.W.3d at 716.