Opinion ID: 1773920
Heading Depth: 2
Heading Rank: 2

Heading: Capability of Production

Text: Because we conclude that actual production was not necessary to sustain the lease, we next consider whether the 1981 and 1985 cessations terminated the lease. This depends upon whether the well holding the leased premises was capable of production during the two periods when actual production ceased longer than sixty days. According to Anadarko's brief, [t]he evidence is undisputed here that the well was capable of production during the two periods when no production was shown, because the evidence shows that the well was shut-in for pipeline repairs. In response, Thompson contends that the well was not capable of production, because the well would not have produced if it had been turned on. See Hydrocarbon Mgt., Inc. v. Tracker Exploration, Inc., 861 S.W.2d 427, 433-34 (Tex.App.-Amarillo 1993, no writ). We have determined that the completion of a gas well capable of producing in paying quantities but shut-in due to lack of pipe line facilities or for other reasons is not considered production and therefore does not sustain a mineral interest that lasts as long as oil or gas is produced. Peveto v. Starkey, 645 S.W.2d 770, 771 (Tex.1982) (quoting Midwest Oil Corp. v. Lude, 376 S.W.2d 18, 20 (Tex.Civ. App.-Corpus Christi 1964, writ ref'd n.r.e.)); see also Giles v. McKanna, 200 S.W.2d 709, 712 (Tex.Civ.App.-Austin 1947, writ ref. n.r.e.) (noting the marked difference between the capacity to produce in paying quantities and actual production in paying quantities). However, we have not defined what capable of production means. One court of appeals considered this issue in deciding whether a lessee's paying shut-in royalties maintained a lease even though actual production had ceased. Hydrocarbon, 861 S.W.2d at 433-34. In this context, the Hydrocarbon court stated: We believe that the phrase capable of production in paying quantities means a well that will produce in paying quantities if the well is turned on, and it begins flowing, without additional equipment or repair. Conversely, a well would not be capable of producing in paying quantities if the well switch were turned on, and the well did not flow, because of mechanical problems or because the well needs rods, tubing, or pumping equipment. Hydrocarbon, 861 S.W.2d at 433-34. We approve the Hydrocarbon definition, because it is consistent with existing cases that discuss the difference between actual production and capability of production. See Peveto, 645 S.W.2d at 771 (a well is capable of production if it is shut-in because there is no available pipeline); Stanolind Oil & Gas Co. v. Barnhill, 107 S.W.2d 746, 749 (Tex.Civ.App.-Amarillo 1937, writ ref'd) (a well is capable of production if it is shut-in because there is no available market); see also Davis, 254 S.W. at 309 (a well is incapable of production if the lessee removes the equipment and abandons all efforts to produce); Pack, 869 P.2d at 327 (a well is incapable of production if the underlying mineral reserves are depleted). Accordingly, we hold that a well is capable of production if it is capable of producing in paying quantities without additional equipment or repairs.