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St. Mary's Law Journal

Abstract

Horizontal drilling technology continues to revitalize the oil and gas industry, however, many of the legal concepts governing oil and gas law have failed to keep pace. Recently, in Browning Oil Co. v. Luecke, the Third Court of Appeals of Texas dealt with the issue of whether an antidilution clause applied to both horizontal and vertical wells. The agreement between the parties did not contemplate the use of horizontal technology, however, the express language did not exclude horizontal technology. Because the agreement did not expressly exclude horizontal drilling, the court looked at the intent of the parties and ruled that the antidilution clause applied to both vertical and horizontal wells. The court in Luecke clarified that broad clauses initially drafted for vertical wells will be subsequently applied to horizontal wells. Luecke ultimately highlighted the importance of parties specifying their intentions when pooling their interests. Recognizing that antidilution clauses apply to horizontal wells, absent express designation of horizontal or vertical application, appears to be a rule that promotes an efficient drilling practice without prejudicing the rights of the lessor or lessee. After Luecke, lessors and lessees will understand that if an oil and gas lease has an antidilution clause, the courts will likely interpret it to apply to both horizontal and vertical wells absent express intentions otherwise. Therefore, a lessee needs to be particularly careful in signing a lease with an antidilution clause because it potentially limits the lessee's ability to pool, as demonstrated by the court's treatment of that clause.

Publisher

St. Mary's University School of Law

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