Chapter 6 Implied Lease Covenants

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Chapter 6

Implied Lease Covenants

 

 Implied covenants are obligations that courts derive by implication from oil and gas leases and impose upon lessees. H. Williams & C. Meyers, Oil And Gas Terms 452 (7th ed 1987).  The courts now recognize the six implied covenants listed below:

1.To protect the leasehold from drainage;
2.To develop reasonably the premises;
3.To produce and to market the product;
4.To conduct surface and drilling obligations with due care;
5.To drill an initial exploratory well;
6.To explore the premises further.

Id.

 Implied covenants are treated as covenants rather than as conditions subsequent. Meaher v. Getty Oil Co., 450 So.2d 443 (Ala. 1984)  An action for damages is the proper remedy for breach of the implied covenants. Id.  The remedy for the breach of an implied covenant is not forfeiture of the lease unless the remedies available at law are wholly inadequate. Id.  Only in “extraordinary circumstances” are damages wholly inadequate. Id., at 443.  Furthermore, with respect to forfeitures, the Alabama Supreme Court has from time to time stated that it disfavors the forfeiture of oil and gas leases. Id.  The court views the cancellation of a lease to be “nothing less than a forfeiture of a recognized and protected property interest.” Id., at 443.

Copyright 2011 by Edward G, Hawkins. All rights reserved.