Drilling Operations Clause

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Drilling Operations Clause

 

 In Griffin v. Crutcher-Tufts Corp., 500 So. 2d 1008 (Ala. 1986) the Alabama Supreme Court considered the effects of the drilling operations clause appearing in the Bidgood Producers 88 (Rev.)--8-51--D25154 With 640 Acre Pooling Provision, Alabama Form. The drilling operations clause at issue in the case was as follows:

 

6.   If prior to discovery of oil, gas or other mineral on said land or on acreage pooled therewith Lessee shall drill a dry hole or holes thereon, or if after discovery of oil, gas or other mineral the production thereof should cease from any cause, this lease shall not terminate if Lessee commences additional drilling or reworking operations within 60 days thereafter, or if it be within the primary term, commences or resumes the payment or tender of rentals or commences operations for drilling or reworking on or before the rental paying date next ensuing after the expiration of 60 days from date of completion of dry hole or cessation of production....*

 

[*The same clauses appear in other lease forms. For instance, see the drilling operations clauses in the Hederman Brothers Producers 88-D9803 (Revised October 1, 1948), the Hederman Brothers Alabama Producers 88-D9803 (Revised February 4, 1949), the Gill Printing & Stationery Company, Mobile (1-18-66) form, and the Gill Printing & Stationery Company, Mobile, Producers 88 (Rev.) --8-51--D25154 With 640 Acre Pooling Provision Alabama form. The shut-in royalty provisions also appear in the Gill Printing & Stationery Co., Mobile, Alabama (1-18-66) form and the Gill Printing & Stationery Co., Mobile, Alabama, Producers 88 (Rev.) --8-51--D25154 With 640 acre pooling provision Alabama form.]

 

If at the expiration of the primary term, oil, gas or other mineral is not being produced on said land, or on acreage pooled therewith, but Lessee is then engaged in drilling or reworking operations thereon or shall have completed a dry hole thereon within sixty (60) days prior to the end of the primary term, the lease shall remain in force so long as operations are prosecuted with no cessation of more than sixty (60) consecutive days, and if they result in the production of oil, gas or other mineral is produced from said land or acreage pooled therewith.

 

Griffin, 500 So. 2d at 1009, 1010. (Emphasis added.)

 The court characterized the language in the lease as a “drilling operations clause.” Under a drilling operations clause, such as the one set out above, production must be obtained from the well in process at the expiration of the lease in order to perpetuate the lease. If the particular well that is being drilled at the expiration of the primary term of the lease is dry, the “drilling opera­tions clause” will not allow the producer to perpetuate the lease by drilling a second replacement well. On the other hand, a lease with a “continuous drilling operations clause” will allow the producer to perpet­uate the lease by drilling any number of wells so long as there is no lapse in the drilling operations that exceeds the lapse period allowed by the clause.

 The ruling in Griffin on the drilling operations clause appears to have been heavily influenced by the holding in a Texas Supreme Court case, Rogers v. Osborn, 261 S.W. 2d 311 (Tex. 1953). After the Texas Supreme Court released the Rogers decision, oil company land departments began changing their lease forms to protect against the Rogers decision. Most lease forms now in use in Alabama contain language that avoids the Rogers and Griffin results. The drilling operations clause involved in the Griffin case, however, predated the Rogers decision. Many older lease forms that are still in effect in Alabama have the same language that gave rise to the Griffin litigation.

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