## Facts

- Landowners (lessors) executed two separate oil-and-gas leases to an oil company (lessee) covering different tracts.
- Each lease granted the lessee the exclusive right to explore and produce oil and gas and provided for royalties to the lessors.
- Each lease contained specific development provisions requiring commencement of drilling and, after discovery, drilling a stated number of wells at stated time intervals.
- On the first tract, the lease required 12 wells after discovery; the lessee drilled 15.
- On the second tract, the lease required four wells after discovery; the lessee drilled five.
- The lessors nevertheless sued for damages, alleging breach of an implied covenant to further develop with reasonable diligence by drilling additional wells beyond the contractual well program.
- The trial court entered judgment for the lessors on the theory of failure to develop with reasonable diligence; the intermediate appellate court reversed and rendered for the lessee and certified a legal question.

## Issues

1. Whether an oil-and-gas lease that expressly prescribes the number and timing of development wells is subject to an implied covenant requiring the lessee to drill additional wells beyond those specified.
2. Whether a petition seeking damages for failure to drill in excess of the express well requirements states a cause of action, or is subject to a general demurrer.

## Decision

- The court answered the certified question in favor of the lessee.
- The express lease provisions prescribing the number (and intervals) of wells governed the parties’ development obligations.
- Those express stipulations necessarily excluded any implied covenant to drill additional development wells beyond the stipulated program.
- The lessors’ petition, to the extent it relied on an implied covenant for further development in excess of the lease terms, was subject to the lessee’s general demurrer and stated no cause of action.

## Legal Principles

- Implied covenants in oil-and-gas leases arise only from necessity and only when the lease is silent on the point; courts will not imply duties that override the parties’ written agreement.
- When a lease expressly prescribes the number of wells to be drilled (and the time for drilling them), there is no implied covenant requiring the lessee to drill additional wells beyond those expressly required.
- A lease provision making failure to drill the specified wells a basis for termination is part of the parties’ agreed development scheme and does not support implying additional development obligations.
- Any implied development obligation exists, if at all, only while the lease remains in force; it does not create an indefinite, continuing duty divorced from the lease’s express limitations.

## Conclusion

Because the leases expressly fixed the required development program and the lessee drilled at least the required number of wells, Texas law did not imply an additional covenant to drill more wells; a damages claim premised on such an implied duty was not legally cognizable.


Gulf Prod. Co. v. Kishi, 103 S.W.2d 965 (Tex. 1937)