Endeavor Energy Resources, L.P. v. Energen Resources Corporation and John Thomas Quinn
The Texas Supreme will hear oral argument on September 16, 2020, in the case entitled Endeavor Energy Resources, L.P. v. Energen Resources Corporation and John Thomas Quinn. Endeavor appealed an adverse summary judgment decision from the 118th District Court of Howard County, Texas, to the Eleventh Court of Appeals, and now asks the Texas Supreme Court to review and reverse the appellate court’s affirmation of that adverse decision.
Endeavor is the successor Lessee of a 2006 oil and gas lease that originally covered just over 11,000 acres owned by Quinn. The lease provided that Endeavor could retain lands not dedicated to producing protection units after the expiration of the three-year primary term as long as Endeavor drilled continuously pursuant to the continuous development clause. The relevant part of the continuous development clause provided that to extend the lease as to non-dedicated acreage, Lessee must commence operations of the first continuous development well within 150 days after the expiration of the primary term, and allow no more than 150 days elapse between the completion of one well and commencement of operations on a subsequent well. If Lessee allowed more than 150 days to elapse between completion of one well and commencement of a subsequent well, the lease would expire as to all non-dedicated acreage.
In 2015, after Endeavor allowed 311 days to elapse after completion of a well, Quinn executed a new lease covering non-dedicated acreage in favor of Energen. Energen immediately filed suit against Endeavor claiming the “continuous-development program in the previous lease had lapsed” as to the non-dedication acreage. The disconnect between the parties was over the interpretation of the following provision:
Lessee shall have the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the drilling of a subsequent well.
Endeavor argued “that the plain language of the accumulation provision” allowed Endeavor to “accumulate unused days over the course of the continuous-development program, which in this case spanned five years, and to use them on an as-needed basis”. In other words, as Endeavor noted in its Reply Brief, “unused days that roll over to the next term become part of that term, capable of successive rollover into the next succeeding term.” Therefore, Endeavor claimed, it “had accumulated 227 unused days under the continuous-development program that permitted it to wait 377 days to commence operations on the [next] well.”
Energen countered “that the plain language of the accumulation provision only permitted Endeavor to extend the 150-day term for a well with unused days from the immediately preceding well.” The appellate court agreed with Energen.
In reaching its decision, the Court examined the accumulation provision, and noted that it began with the phrase “Lessee shall have the right to accumulate unused days in any 150-day term during the continuous-development program . . . .” which allowed Endeavor to “to accumulate unused days from any term during the continuous development program.” The rest of the sentence “specifies the manner in which accumulated days may be used – ‘in order to extend the next allowed 150-day term between the completion of one well and the drilling of a subsequent well.’” The Court reasoned that “[b]y limiting the use of unused days to the ‘next allowed’ 150-day term, the language of the accumulation provision limits the use of unused days arising from the ‘early’ drilling of one well to be used only to extend the 150-day term for the drilling of the next well.” The Court also noted that the definition of “next” is “immediately adjacent (as in place, rank or time.).”
This will be an oral argument to watch, and a decision to read. The outcome will not just shape the drafting of future accumulation clauses. It will also keenly affect the import of choosing words we intend to, and think, have clear and “plain meaning”. It’s not always so clear and plain.