In Sun Exploration & Production Co. v. Jackson, the Texas Supreme Court held Texas oil and gas leases contain a separate and distinct implied covenant to further explore after lucrative production. A lease that grants an interest in oil and gas found beneath the ground surface holds several implied covenants. Once successful production begins on a leasehold, implied covenants arise to encourage cooperation between the lessor and the lessee. A covenant is a “promise” between two or more parties to perform or not to perform a specific act. A covenant may be expressly stated within a contract or implied by the actions of the parties. Implied covenants are contractual terms with binding power equal to express contractual provisions.
In Jackson, the Texas Supreme Court correctly separated the implied covenant to further explore from the implied covenant to reasonably develop the oil and gas lease. Separation of the implied covenant to further explore the land from the implied covenant to reasonably develop the land alleviates confusion by clarifying the duties allegedly breached by the lessee and the causes of action to be asserted by the lessor. Because exploration and development involve distinct activities, factual statements in the pleadings will notify the lessee of the duty allegedly breached. This notice clarifies the issues to be tried, resulting in a more efficient trial. Furthermore, by recognizing an implied covenant to further explore, Jackson prevents the lessee from holding the lessor's land for speculative purposes, thus encouraging the policy of fully exhausting available mineral resources.
St. Mary's University School of Law
E. Joy Jackson Sparks,
Texas Oil and Gas Leases Contain Separate and Distinct Implied Covenant to Further Explore after Lucrative Production.,
St. Mary's L.J.
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol20/iss4/9
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