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High court hears dispute over whether cotenant production can perpetuate oil-and-gas leases
Summary
The Supreme Court of Texas heard argument in Cromwell v. Anadarko E & P Onshore (No. 230927) over whether production by a cotenant can sustain a paid-up oil-and-gas lease past the primary term even if the lessee did not drill.
The Supreme Court of Texas heard oral argument in 230927, Cromwell v. Anadarko E & P Onshore, a dispute over whether a lessee who did not itself drill wells may hold a paid-up oil-and-gas lease past the primary term when production occurs on the leased acreage by a cotenant or a later lessee. Petitioner (Cromwell) argued his leases contemplate production without requiring the lessee personally to drill; respondent (Anadarko) countered that longstanding precedent and lease purpose require the lessee to take affirmative steps to produce or cause production.
The case centers on interpreting treaty-like lease clauses (the habendum and granting clauses), the meaning of passive-voice "is produced" language, and whether courts should imply the phrase "by the lessee" into otherwise passive clauses. Petitioner urged a plain-text reading and said implying a drilling obligation into the habendum clause would rewrite negotiated agreements.
Petitioner counsel (Mr. Smith) opened by saying Cromwells leases "require production in paying quantities, and it is undisputed that such production has occurred at all relevant times," and argued that common-law remedies (for example, contribution from cotenants) and contractual devices (pooling, JOAs) provide mechanisms for protecting covenants without importing a termination condition into the habendum clause.
Respondent counsel, Miss Zamora, said Cromwells approach would let leases be used as "mere passive investment tools," enabling speculators to secure paid-up leases and keep them without engaging in development. She asked the court to reaffirm past decisions (e.g., Madison and Hughes v. Cantwell) that look to the leases purpose and require the lessee to prosecute exploration or production to preserve the estate.
Justices pressed both sides on practical consequences. Petitioner's counsel noted Cromwell repeatedly tried to secure operator cooperation (seeking a JOA and voluntary contribution) and had in fact contributed to operational costs; he said statutes and industry practice limit compulsory pooling and that implying an obligation to drill would punish lessees who negotiated different terms. Respondents counsel urged the court to preserve a doctrine that incentivizes active development and protects lessors.
The argument canvassed multiple precedents and treatises (Anadarko v. Thompson, Madison, Williams & Myers), and the justices asked whether importing a drilling duty would render related doctrines (like the implied covenant to develop) superfluous. Counsel differed sharply on whether older appellate cases support reading production by a cotenant as sufficient to perpetuate a lease.
After argument the case was submitted; the court did not issue a decision from the bench.
Speakers quoted in this article are drawn from the oral argument transcript; the article does not create facts beyond counsels on-the-record arguments.
