Apache Deepwater, LLC v. Double Eagle Dev., LLC, 557 S.W.3d 650 (Tex. App.—El Paso 2017, pet. denied Dec. 14, 2018)
Retained acreage provisions continue to be a popular subject in Texas oil and gas law. The Texas Supreme Court recently denied a petition for review in the closely-watched case, Apache v. Double Eagle. In that case, the parties disagreed as to whether a retained acreage clause provided for a single partial termination at the end of the primary term (i.e., a “snapshot-in-time” termination), or a continuous partial release throughout the secondary term (i.e., “rolling termination”). This case bolsters the old adage: “say what you mean and mean what you say.” Texas courts will not fill in the blank otherwise.
The facts of the Apache case are fairly straightforward. The dispute involved a 1975 lease covering 640 acres in Reagan county, which was divided up into four proration units, each with its own producing well. However, several years after the primary term had expired, three of the four wells ceased production. Apache later acquired that lease by assignment.
In 2012, Double Eagle acquired a lease covering the three sections where production had ceased. Apache balked, claiming that its one remaining well was sufficient to hold the entire 640-acre lease. The dispute turned on the retained-acreage clause, which read as follows:
Notwithstanding anything to the contrary…Lessee covenants to release this lease after the primary term except as to each producing well on said lease, operations for which were commenced prior to or at the end of the primary term and the proration units as may be allocated to said wells…
Double Eagle argued that language provided for a “rolling” termination, and therefore each unit terminated as its well ceased producing. However, Apache argued that this clause provided for a single “snapshot” termination, essentially applying one time at the end of the primary term. Under Apache’s reading, because all four wells were producing at the end of the primary term, there would be no partial termination later down the road as long as one well was producing in paying quantities.
The El Paso Court of Appeals held in favor of Apache, explaining (1) this is not the sort of “clear, precise, and unequivocal language” Texas courts require to limit a habendum clause, (2) this habendum clause broadly described that production would extend the entire “leased premises.”
The court was not persuaded by Double Eagle’s arguments that (1) the phrase “after the primary term” in the habendum clause means the same thing to the industry as “during the secondary term,” or (2) that the phrase “notwithstanding” automatically shows that the parties intended the retained acreage provision to be contrary to the habendum clause.
The takeaway? Parties desiring a rolling termination should take care to draft “clear, precise, and unequivocal” language.
Austin Brister
