Adams v Murphy Exploration & Production, 4th Court of Appeals, San Antonio, June 15, 2016, 2016 Tex. App. LEXIS 6276

A clause in a lease providing for the drilling of an offset well to prevent drainage from a well drilled near the lease line was improper where the lessee’s expert did not offer testimony that the offset well would, in fact, prevent drainage from the offending well.

The Shirley and Adams leases contained an offset well provision that required Murphy, if a well is drilled on contiguous acreage within 467 feet of the boundary of the Adams lease was drilled and completed as a producing well. Upon such occurrence, Murphy could either begin an off-set well, pay royalties based on the production of the well drilled on contiguous acreage, or release a part of the lease. A well was so drilled (the “Lucas” well) and Murphy chose to drill an offset well, which it began in a timely manner (the “Herbst” well). The Herbst well bottomed in the same formation as the Lucas well but the laterals were 2100 feet apart.

On competing motions for summary judgment, the trial court ruled for Murphy that the Herbst well qualified as an offset well. The court recognized that the purpose of an offset well is to prevent drainage of hydrocarbons from one tract to another. Murphy submitted an affidavit from an expert who testified that the Eagle Ford Shale Formation did not drain but from a distance of 225 feet. Adams expert testified that the Herbst well would not prevent drainage. Since Murphy’s expert did not testify that the Herbst well would prevent drainage from the Lucas well, summary judgment for Murphy was improper.