Drilling Operations

Question 1

Discovery and Marketing

Answer 1

In most leases, continuation of the lease into the second term is contingent upon actual production, unless otherwise provided for in the lease language. Production is viewed differently by various states.

Question 2

Marketing

Answer 2

Refers to the actual sale of oil or gas

Question 3

Majority Rule on Production & Marketing

Answer 3

Texas
The majority of U.S. states consider marketing and production to be one in the same. If a lessee fails to market the oil or gas, the well is not considered to be producing

Question 4

Baldwin v. Blue Stem

Answer 4

Kansas

No well had been completed by the date ending the primary term, and none had been commenced until about one month prior. The defendants argued excuses such as employee illness.

the court ruled that under the lease terms, the only way to enter the secondary term is to have achieved actual production, including marketing and sales of oil and gas. The lease terminated by its own terms.

Question 5

McVicker v. Horn, Robinson & Nathan

Answer 5

Oklahoma

A gas well was completed during the primary term, but no gas was ever marketed or sold, and the well was shut in.

The court found that the term production does not include an implied covenant to market oil or gas. A lessee has a reasonable time after completion of a well to market oil or gas, so long as actions to market are attempted diligently.

Question 6

Greer v. Carter

Answer 6

Illinois

Plaintiffs had not recorded assignment or claimed payments for 5 years before they brought action to quite title. The defendant suspended operations during litigation and the primary term of the lease expired during this time.

The court ruled the plaintiffs had notice of outstanding title and waited to bring forth action until insufficient time was left before the lease expired. The defendant was allowed six months to commence drilling operations.