## Facts

- Landowners (lessors) granted an oil and gas lease to lessees with a primary term ending September 21, 1947.
- The lease provided that absent production at the end of the primary term, the lease could continue only if the lessee was then engaged in “drilling or reworking operations,” and similar savings provisions applied after a dry hole or after cessation of production if additional drilling or reworking began within 60 days.
- Well No. 1 was commenced May 15, 1947.
- Drilling tools were removed and the derrick was torn down on July 30, 1947.
- After July 30 and beyond the primary term, lessees conducted “periodic flowing” of Well No. 1 to clean mud and baroid by building gas pressure and opening a valve; the activity became less frequent over time.
- By September 21, 1947, there was no marketable production from Well No. 1, and lessees did not tender shut-in royalties.
- After the primary term expired, lessees commenced Well No. 2, which later produced.
- Lessors sued to cancel the lease as expired; the trial court and intermediate appellate court upheld the lease, treating the Well No. 1 activity and Well No. 2 production as sufficient to maintain it.

## Issues

1. Whether post-primary-term work on a nonproducing well constituted “reworking operations” sufficient to continue the lease despite no marketable production.
2. If the lease was continued temporarily by such reworking, whether drilling and production from a second well begun after the primary term could maintain or revive the lease once reworking ceased.

## Decision

- The court reversed and rendered judgment for the lessors, terminating the lease.
- It held as a matter of law that Well No. 1 had no “production” because there was no marketable oil or gas.
- It held that the “periodic flowing” efforts on Well No. 1 qualified as “reworking operations,” continuing the lease only while those operations were pursued with reasonable diligence and in good faith.
- It held that once qualifying reworking operations ceased, the lease terminated automatically in the absence of production.
- It held that Well No. 2, commenced after expiration of the primary term, could not support or revive the lease after termination.

## Legal Principles

- In an oil and gas lease, “production” ordinarily means production of marketable oil or gas, not intermittent flows or nonmarketable shows.
- A savings/operations clause may extend a lease beyond the primary term when the lessee is engaged in bona fide drilling or reworking operations aimed at obtaining production.
- The extension under such a clause is limited to the period during which qualifying operations are prosecuted with reasonable diligence; when they stop, the lease ends absent production.
- A new well commenced after the primary term cannot extend or resurrect an expired lease unless the lease expressly authorizes that result.

## Conclusion

Reworking activity on an existing nonproducing well can keep a lease alive past the primary term, but only during diligent, good-faith reworking; once those operations end without marketable production, the lease terminates and later production from a new well begun after the term cannot revive it.


Rogers v. Osborn, 261 S.W.2d 311 (Tex. 1953)