Application of the Implied Temporary Cessation of Production Doctrine

In Landover Prod. Co., LLC v. Endeavor Energy Res., L.P., No. 11-13-00132-CV, 2014 Tex. App. LEXIS 11990 (October 31, 2014), the Eastland Court of Appeals applied the implied temporary cessation of production doctrine to preserve a lease in its secondary term because the lease did not have an explicit savings clause that applied to the secondary term of the lease.

The Defendants (collectively “Endeavor”) owned the working interest under an 80-acre oil and gas lease.  Id., at *1.  The primary term of the lease had expired, but the lease continued to operate under the secondary term because there was production at the end of the primary term.  Id.  The Plaintiff, Landover Production Company, LLC (“Landover”), held a “top lease” on the same 80-acre tract.  Id.  Landover filed suit claiming that Endeavor’s lease had automatically terminated due to cessation of production, and, therefore, its top lease was the only valid lease covering the tract.  Id.  The only issue before the court was whether the cessation of production, which the parties agreed had occurred,[1] terminated Endeavor’s lease.  Id., at 3.

Endeavor’s lease provided:

“If at the expiration of the primary term oil and gas is not being produced on said land but Lessee is then engaged in drilling or re-working operations thereon, the lease shall remain in force so long as operations are prosecuted with no cessation of more than thirty (30) consecutive days, and if they result in the production of oil and gas so long thereafter as oil and gas is produced from said land.”

Id., at *3-4.  Despite the inclusion of a savings clause in Endeavor’s lease, the Court concluded that the savings clause was not applicable to the secondary term of the lease.  Id., at *4.  The Court explained that the savings clause only applied “if at the expiration of the primary term oil and gas is not being produced on said land.”  Id., at *4-5.  In this case, there was production at the end of the primary term of the lease.  Id., at *4.  The cessation of production doctrine occurred after the lease was already in its secondary term.  Additionally, the lease contained no other terms that would act as a savings clause during the secondary term.  Id., at *5.

In the absence of a savings clause applicable to the secondary term, the lease “terminates automatically upon cessation of production during the secondary term.”  Id., see Watson v. Rochmill, 155 S.W.2d 783, 784 (Tex. 1941).  Nonetheless, other courts have applied a “necessarily implied” temporary cessation of production clause if a lease contains no express savings clause.  Id., see Krabbe v. Anadarko Petroleum Corp., 46 S.W.3d 308, 315 (Tex. App. – Amarillo 2001 pet. denied) (citing Midwest Oil Corp. v. Winsauer, 159 S.W.2d 944, 946 (Tex. 1959).  The temporary cessation of production doctrine provides that the “automatic termination rule is relaxed if the lessee can prove that the cessation of production is temporary and is due to sudden stoppage of the well, some mechanical breakdown of the equipment used in connection therewith, or the like.”  Id., at *5-6, see Krabbe, at 315 (citing Amoco Prod. Co. v. Brauslau, 561 S.W.2d 805, 809-10 (Tex. 1978); Midwest Oil Corp., 323 S.W.2d at 947; and Watson, 155 S.W.2d at 784).  The temporary cessation of production doctrine also requires that the lessee act with diligence and remedy the cause of the temporary cessation and resume production within a reasonable time.  Id., at *6, see Krabbe, at 315-16.

The Court concluded that Endeavor proved that it acted with diligence and remedied the cause of the temporary cessation and resumed production within a reasonable time.  Id.  Furthermore, even though Landover claimed that “reasonable production alternatives were not utiltized,” the Court found that Endeavor was not required to overcome that burden under the facts of the case.  Id.  Consequently, Endeavor’s lease did not terminate when production in the secondary term ceased, because the temporary cessation was excused under the implied temporary cessation of production doctrine.  Id., at *9.

It is important for a lessee to examine carefully the language of a lease before interrupting production during the secondary term of a lease.  A brief interruption in production may cause the lease to terminate automatically.  However, the implied temporary cessation of production doctrine may apply if the lease contains no express savings clause applicable to the secondary term.  Additionally, if the implied temporary cessation of production doctrine does apply, then the lessee must demonstrate that it acted with diligence and remedied the cause of the temporary cessation and resumed production within a reasonable time.


[1] The parties agree that there was a cessation of production.  Landover Prod. Co., LLC v. Endeavor Energy Res., L.P., No. 11-13-00132-CV, 2014 Tex. App. LEXIS 11990 (October 31, 2014).  A heater-treater used to separate the oil from the water malfunctioned during the May 2001 and August 2001 time period, making it impractical to continue production.  Id.  For Endeavor to make the repairs, it was necessary to stop production and turn off the well.  Id., *7.  Several attempts were then made by Endeavor to repair the heater-treater; however, Endeavor was hampered in its efforts by bad weather.  Id.  In August 2001, the repairs were completed and production from the well resumed.  Id., at *8.