## Facts

- In 1938, members of the Jackson family leased approximately 10,000 acres in Chambers County, Texas (the Jackson Brothers Ranch) for oil and gas development.
- Sun Exploration and Production Company (successor to Sun Oil Company) held most of the working interest under the lease; Amoco Production Company later acquired a small minority working interest.
- Sun developed and produced from a portion of the lease in the Oyster Bayou Field, while significant acreage and deeper formations remained largely undrilled.
- After decades of production, the Jacksons sought to free undeveloped acreage and depths from the lease, alleging breach of implied covenants to reasonably develop and to explore.
- Sun sued for a declaratory judgment confirming the lease’s continuing validity and sought to enjoin the Jacksons from interfering with its leasehold access; the Jacksons counterclaimed for cancellation.

## Issues

1. Whether Texas oil and gas leases recognize an implied covenant to explore that is separate from, and independent of, the implied covenant of reasonable development.
2. Whether a finding of failure to “reasonably explore” can support lease cancellation when the factfinder also finds no failure to reasonably develop.

## Decision

- The jury found Sun did not fail to reasonably develop the leasehold, but did fail to reasonably explore the entire leasehold.
- The trial court cancelled the lease as to certain undrilled areas and ordered conditional cancellation as to depths below 8,480 feet in a developed area.
- The court of appeals affirmed the unconditional cancellation and reversed and remanded as to the conditional cancellation.
- The Texas Supreme Court reversed, holding there is no independent implied covenant to explore apart from reasonable development.
- Because the jury found no breach of the implied covenant of reasonable development, lease cancellation was improper.
- The case was remanded for determination of attorney’s fees and whether Sun and Amoco were entitled to injunctive relief.

## Legal Principles

- Texas oil and gas leases include an implied covenant of reasonable development.
- Any duty to conduct exploratory drilling is part of the reasonable-development obligation; Texas law does not recognize a distinct, free-standing implied covenant to explore.
- A lessor seeking cancellation for lack of additional drilling must prove breach of the implied covenant of reasonable development; a separate “failure to explore” theory cannot sustain cancellation where reasonable development is found.
- Lease cancellation is an equitable remedy generally unavailable absent proof of breach of an express or implied covenant supporting that relief.

## Conclusion

The Texas Supreme Court rejected a separate implied covenant to explore, treated exploration as encompassed within reasonable development, and reversed lease cancellation because the jury found Sun had not breached the implied covenant of reasonable development, remanding only for attorney’s fees and possible injunctive relief.


Sun Expl. & Prod. Co. v. Jackson, 783 S.W.2d 202 (Tex. 1989)