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Copyright 2009 The University of Texas, Texas Journal of Oil, Gas, & Energy Law. All Rights Reserved.
Texas Journal of Oil, Gas, and Energy Law

ARTICLE: THE IMPLIED COVENANT TO MARKET: A FEW YEARS LATER

Spring, 2009

Texas Journal of Oil, Gas, and Energy Law

4 Tex. J. Oil Gas & Energy L. 299

Author

SCOTT LANSDOWN *

Excerpt

I. INTRODUCTION

In 2000 the author published an article, The Implied Marketing Covenant in Oil and Gas Leases: The Producer's Perspective, 1 which discussed the implied obligation of a lessee under an oil and gas lease to act prudently with regards to marketing production. The thesis of that article may be stated rather simply: the implied covenant to market obligates an oil and gas lessee to act as a reasonably prudent operator in producing and marketing oil and gas. 2 The covenant includes an obligation to make reasonable efforts to produce oil and gas once they have been discovered. 3 It also imposes an obligation to make reasonably prudent efforts to obtain the best price for production if, and only if, the royalty payable under the lease depends on the price received by the lessee. The covenant may also impose an obligation of reasonable prudence with regard to other actions by the lessee to the extent, and only to the extent, that the actions of the lessee affect the interests of the royalty owner. 4 The implied marketing covenant should not, however, be applied to change the express and unambiguous terms of an oil and gas lease simply because those changes may produce a desirable result for the royalty owner. 5

Producer's Perspective focused on three specific misapplications of the implied marketing covenant: (1) precluding the deduction of post-production costs in the calculation of royalties; 6 (2) requiring that the lessee pay royalty on the ...
 
 
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