Face Challenges Confidently

082 Geotrac Energy Corp. v. Gottschalk

Tuesday, September 1st, 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.
The lease involved in Geotrac Energy Corp. v. Gottschalk, 925 S.W.2d 101 (Tex. App.–Austin 1996, no writ) contained a typical habendum clause in the printed form “for a term of 3 years from this date (called “primary term”) and al long thereafter as oil, gas or other mineral is produced from said land hereunder.” The printed form habendum clause was then modified by an addendum which read:
Provided this lease is held by production at the expiration of the primary term, Lessee will have one (1) year after the expiration of the primary term to drill an additional well, and if no such well is drilled, then this lease will expire except to forty (40) acres around each producing oil well and eighty (80) around each gas well. Two producing wells will hold the entire leasehold described herein.
Within the primary term the lessee drilled a producer and a dry hole. Within a year after the primary term expired, lessee drilled another dry hole. Lessor contended that the lease had terminated because of lessee’s failure to drill two producing wells. Lessee contended that one producing well and the additional well it drilled after the expiration of the primary term were all that was required to hold the entire lease.
A decision for the lessor in the trial court on competing motions for summary judgment was reversed and rendered on appeal. Neither party contended the lease was ambiguous, and the court followed several well-established general rules of construction in interpreting the lease. However, the two rules which the court found most persuasive are uniquely applicable to oil and gas leases. “Language used by parties to an oil and gas lease will not be held to impose a special limitation on the grant unless it is clear and precise and so unequivocal in nature that it can reasonably be given no other meaning.” Fox v. Thoreson, 398 S.W.2d 88, 92 (Tex. 1966). If the language of an oil and gas lease “is reasonably susceptible of a construction argued for by one of the parties, that prevents a forfeiture, such construction is to be preferred to one resulting in a forfeiture.” Kincade v. Gulf Oil Corp., 675 S.W.2d250, 256 (Tex. App.–San Antonio 1984, writ ref’d n.r.e.). Applying these two rules, the court accepted lessee’s construction as offering an alternative that preserved the lease and which was a reasonable interpretation of the addendum, which itself did not “clearly, precisely, and unequivocally” terminate the lease.