Face Challenges Confidently

484 EnerQuest Oil & Gas, LLC v. Plains Exploration & Prod. Co.

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.
On motion for reconsideration, EnerQuest EnerQuest Oil & Gas, LLC v. Plains Exploration & Prod. Co., No. SA-12-CV-542-DAE, 2014 WL 1652599 (W.D. Tex. Apr. 24, 2014) again reviewed whether the payment of bonus included the payment of delay rentals.  The court again concluded that the leases were not held by rental payments to the end of the primary term (end of the “rental period”).  Therefore, shut-in royalties were due ninety days after the well was shut in under the shut-in well clause.  EnerQuest argued that the term “paid-up” is a term of art.  Delay rentals must have been paid because they are paid in all cases involving a “paid-up” lease.  The court held that the leases were “paid-up,” but because there was no drilling/delay rental clause or any other evidence to demonstrate that delay rentals were prepaid; the leases were “paid-up” by the payment of a bonus, not delay rentals.
The court reasoned that if delay rental payments are always prepaid in a paid-up lease, “then the primary term would always be the ‘rental period’ such that shut-in royalties would never be required to be tendered until the number of days provided for in the lease after the expiration or the ‘rental period,’ or primary term.”  The court generally repeated its earlier examination and reasoning, so that there is little that is new in this opinion.