TotalEnergies E&P USA, Inc. v. Dallas/Fort Worth International Airport Board, City of Dallas, and City of Fort Worth(No. 02-20-00054-CV) arose from an oil and gas lease entered into in 2006 between Chesapeake Exploration and the Dallas/Fort Worth International Airport Board, and the cities of Dallas and Fort Worth. The lease included a “Continuous Development” clause that permitted Chesapeake, at the end of the lease term, to retain acreage around each producing well and release the remainder or retain all leased acreage by continuously developing the leasehold. Several years later, Chesapeake, TotalEnergies, and DFW amended the lease to allow the operators to maintain the lease provided that they drilled “fourteen new wells” over a two-year period. The original lease defined the terms “horizontal” and “vertical” wells, which definitions were not changed by the lease amendment. After gas prices fell in 2015, Chesapeake and Total determined that drilling new wells would not be profitable. Nevertheless, to maintain the lease, Chesapeake informed DFW that it would drill 14 vertical wells, which were cheaper than horizontal wells. DFW sued for a declaratory judgment that the drilling commitment required horizontal wells. The trial court granted summary judgment for DFW. Total appealed.
The court of appeals reversed and rendered in favor of Total, holding that it was entitled to judgment as a matter of law based on the construction of the lease. The court accepted Total’s argument that the language of the lease did not exclude or restrict any direction, type, or characteristic of the required wells in the drilling commitment. In other words, since the drilling commitment only requires the drilling of 14 wells, a “well” can be either horizontal or vertical under the plain terms of the lease. DFW contended that because only horizontal wells made any sense in the Barnett Shale, the parties understood the term “well” to mean “horizontal well.” Conducting a close reading of the lease, the court noted that the lease uses the terms horizontal well and vertical well in relation to the minimum size of the tracts that may be retained under the lease, which differ according to the type of well. With respect to the drilling commitment, however, the lease uses the generic, unmodified term “well,” which indicates that the parties knew the difference but did not specify that the drilling commitment only referred to a horizontal well. The court further rejected DFW’s contention that an implied covenant to reasonably develop the leasehold required horizontal wells or excluded vertical wells. As the court pointed out, any implied covenant of reasonable development must give way to express language in the lease itself.
It’s notable how many cases we see that attempt to get around what appears to be the plain language of a contract. The moral of the story is to say what you mean because most Texas courts, and certainly the highest one, will hold you to it.