HOUSTON, October 12, 2016 - Baker Botts L.L.P, a leading international law firm, announced a victory for firm client Courson Oil and Gas, Inc., when the Amarillo Court of Appeals yesterday upheld the validity of a large oil and gas lease in Roberts County, which is co-owned by Courson.
“This is an important win for Courson, but also an important decision for Texas oil and gas jurisprudence,” said Partner Bill Kroger, co-chair of the firm’s Energy Litigation Practice Group and a lead lawyer on the case. “The court’s outcome applies and affirms the longstanding principles that production on any part of a lease perpetuate the entire lease, and that retained acreage clauses do not typically apply until the end of continuous drilling or other savings provisions at the end of the secondary term of a lease. The decision is also important because it affirms the longstanding rule that leases be construed as a whole, and not in a piecemeal fashion as advocated for by Mayo and Latigo.”
The issue of the case was around the proper interpretation of the lease with regard to the application of a retained acreage clause. Baker Botts successfully obtained summary judgment in favor of Courson’s interpretation of the lease, and the Amarillo Court of Appeals affirmed on October 11, 2016.
“While these principles are not new, the Amarillo decision applies them to the plain language of the lease in a way that upholds the intent of the parties to the lease where aggressive drilling during times of higher oil and gas prices be rewarded by banked time,” said Jason Newman, Baker Botts energy litigation partner in the case. “This then allows the lessee to hold the entire lease during times when lower prices make continuous drilling uneconomic.”
Baker Botts energy litigation lawyers argued for Courson that the duration of the lease was defined by continuous drilling in a way that allowed the lessee to bank time for wells drilled faster than every 180 days. The banked time credits extended the time to drill the next well required to perpetuate the lease, with the retained acreage clause applying at the end of continuous drilling and the expiration of banked time.
At trial and on appeal, Mayo, the lessor under the lease, and Latigo, a co-lessee and 60 percent working interest owner, had aligned to try and terminate production units from the lease by arguing that the lease’s retained acreage clause operated in an atypical way to create a “dual track” for operations under the lease. Under Mayo and Latigo’s interpretation, operations on undeveloped acreage under the lease were governed by the continuous drilling and banked time provisions, but once acreage was developed, the retained acreage clause applied to create rolling terminations of production units where a well went down and no production or reworking operations were timely resumed.
The Baker Botts team representing Courson at trial and on appeal includes: Bill Kroger (Partner, Houston), Jason Newman (Partner, Houston), Amy Hefley (Partner, Houston), and Ben Sweet (Senior Associate, Houston), with assistance from paralegals Sheila Bickel and Leigh Whiting.
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