185 – Veritas Energy, LLC v. Brayton Operating Corp.

Richard F. Brown

 
The following is not a legal opinion. You should consult your attorney if the case may be of significance to you.
 
Veritas Energy v. Brayton Operating Corp., No. 13-06-061-CV, 2008 WL 384169 (Tex.App.-Corpus Christi 2008, pet. filed), holds that marking the location of a proposed lease road will not preserve a lease which requires that drilling operations be commenced before the expiration of the primary term. The lease required that operations be commenced on or before the expiration of the primary term, and the lease defined “operations” as: for and any of the following: drilling, testing, completing, reworking, recompleting, deepening, plugging back or repairing of a well in search for or in an endeavor to obtain production of oil, gas, sulphur or other minerals, excavating a mine, production of oil, gas, sulphur or other mineral, whether or not in paying quantities.
 
The court stated that the threshold issue was whether the lessee performed “drilling or for drilling” operations within the meaning of the lease, before the expiration of the primary term. The case centered on whether back dragging of grass with a backhoe to mark the location of a road constituted operations within the meaning of the lease. Ultimately, the court held that those operations did not.
 
On June 5, 2003, a dirt work company hired by the lessee used a backhoe to back drag grass from the curve in the road on the lessor’s property to the highway area. Later that day, due to rainy conditions, the dirt work company stopped the activity. On June 6, the primary term expired. Lessee resumed work on the road on June 9th or 10th after the primary term of the lease. After reviewing the facts in many possible precedents, the court found that “in each case where it was found that the lease extended into its secondary term, there was considerably more activity toward conducting drilling operations than that undertaken by lessee [in this case].” The court also found that work done to evaluate the prospect before the lease was acquired and assembling data for possible investors could not be “operations” that would preserve this lease.
 
The significance of the case is that it adds to the precedents which define the commencement of operations for purposes of propelling a lease past the expiration of  the primary term and into the secondary term. It suggests, consistent with other precedents, that the test may be more rigorous if there is a requirement for “drilling operations,” rather than just “operations.” However, “drilling operations” is something less than the bit penetrating the ground.