Implied Covenant Of Reasonable Development

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Implied Covenant Of Reasonable Development

 

 The implied covenant of reasonable development is “concerned with further drilling in known formations.”  5 H. Williams & Meyers, Oil And Gas Law § 831, at 212.2 (1989).  The covenant protects against two types of harm: “(1) permanent loss of recoverable hydrocarbons, a relatively rare case, and (2) delay in recovering the hydrocarbons in place, the typical case.” Id.

 In Alabama, the implied covenant of reasonable development is not abated by the entry of a field wide unitization order. Mize v. Exxon Corp., 640 F.2d 637 (5th Cir. 1981).  A field wide unitization order does, however, affect implied covenants.  For instance, the field wide unitization “relieves the lessee of (1) `the usual obligation of an implied covenant for reasonable development of each tract separately’; and (2) `the obligation to drill off-set wells on other included tracts to prevent drainage by a well on any included tract.’ ” Id. at 641.  The release from the implied obligations does not extend to lands located outside the “revenue sharing unit or, as it is referred to in this case, the productive limit.” Id., 640 F.2d at 641., Jones v. Bronco Oil & Gas Co., 446 So.2d 611 (Ala. 1984).

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