## Facts

- EnerQuest Oil & Gas, LLC and Chieftain Energy, LLC acquired two Texas oil-and-gas leases in 2008 from mineral owners.
- Each lease had a two-year primary term and continued thereafter only with production in paying quantities or by compliance with lease “savings” provisions.
- The leases included shut-in royalty clauses with language stating that if the lease was “otherwise being maintained by the payment of rentals,” shut-in royalties would not be due until 90 days after the “rental period” ended.
- The leases did not contain an operative delay-rental clause (no rental amounts, due dates, or nonpayment consequences), though “Paid Up” appeared on the lease pages.
- During most of the primary terms, EnerQuest conducted no meaningful operations; near the end of the term it performed a diagnostic test on an old well, then shut it in, reclassified it as a gas well, and pooled the acreage into a gas unit.
- When the primary terms expired, there was no production in paying quantities, and the lessors notified EnerQuest that the leases had terminated.
- After receiving termination notice, EnerQuest tendered shut-in royalty payments, asserting it had prepaid “rentals” for the primary term and thus had a 90-day post-“rental period” window to pay.
- The lessors rejected EnerQuest’s position and executed new leases to another company, whose interests were later assigned or sold to Plains Exploration & Production Company and EOG Resources, Inc.
- Months later (July 2011), EnerQuest began producing gas from the well.

## Issues

1. Whether the leases remained in force after the primary terms based on timely shut-in royalty payments or production in paying quantities.
2. Whether “Paid Up” and alleged prepayment meant the leases were “being maintained by the payment of rentals,” triggering a 90-day extended shut-in payment period.
3. Whether production that began after the primary terms could revive leases that had already expired.

## Decision

- The court granted summary judgment for Plains, EOG, and the mineral owners on claims dependent on EnerQuest’s alleged continuing leasehold rights and denied EnerQuest’s competing summary-judgment motion.
- The leases terminated at the end of their primary terms because EnerQuest neither achieved production in paying quantities within the term nor timely complied with the shut-in royalty provisions.
- The “rentals”/90-day language in the shut-in clause did not apply because the leases lacked a delay-rental scheme; the “Paid Up” notation did not create a separate rental period.
- Production commencing after expiration could not resurrect an already-terminated lease.
- Although there was a factual dispute about whether the well was capable of producing in paying quantities when shut-in payments were attempted, that dispute was immaterial because the payments were untimely as a matter of law.

## Legal Principles

- Under Texas oil-and-gas law, a shut-in royalty clause can substitute for production beyond the primary term only if (1) payment is timely under the lease and (2) the well is capable of producing in paying quantities at the time of tender.
- Boilerplate references to “rentals” in a shut-in clause do not create or imply a delay-rental obligation or a “rental period” when the lease lacks operative delay-rental terms.
- A “paid-up” lease is commonly maintained during the primary term by upfront consideration rather than recurring delay rentals; absent clear lease language, it is not treated as “maintained by the payment of rentals.”
- Once a lease expires by its own terms, later production cannot revive it without a new agreement.

## Conclusion

The court held that the leases expired at the end of their primary terms because EnerQuest’s shut-in payments were late and the leases were not “maintained by the payment of rentals” despite the “Paid Up” notation; subsequent production could not revive the terminated leases, leaving the successor lessees with valid rights under new leases.


EnerQuest Oil & Gas, LLC v. Plains Expl. & Prod. Co., 981 F. Supp. 2d 575 (W.D. Tex. 2013)