Face Challenges Confidently

048 Gray v. Helmerich & Payne, Inc.

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 some significance to you.
Gray v. Helmerich & Payne. Inc., 834 S.W.2d 579 (Tex. App.-Amarillo 1992, writ den.), considers whether a drilling permit from the Railroad Commission is a prerequisite to “commencement” of drilling operations that are sufficient to perpetuate an oil and gas lease beyond the primary term. The chronology of the relevant facts was as follows:

  1. The lease was pooled.
  2. The drillsite was leveled.
  3. Application for a permit to drill was filed.
  4. A road and a cattleguard were completed.
  5. The primary term “expired.”
  6. A drilling permit was granted.
  7. The well was commenced.

Under Railroad Commission rules, drilling operations shall not be commenced until a drilling permit has been received and the waiting period, if any, has terminated. Lessor and lessee agreed that lessee’s actions were sufficient to perpetuate the lease, unless the drilling permit was a prerequisite to the preliminary drilling operations.
Held: The drilling permit was not a prerequisite, and the lease was extended past the expiration of the primary term. The court reasoned that the function of the Railroad Commission in granting drilling permits is to administer the conservation laws and not to adjudicate property rights. There was nothing in the lease which required obtaining a permit before commencement of drilling operations.
The case is significant because it is one of first impression in Texas. Michigan reaches the opposite result.