In almost every case a lawsuit is filed regarding the validity of an oil and gas lease, the lessee/operator is put in a Catch 22: 1. continue improving the leasehold spending millions for drilling or other operations—and risk losing it all if the case (lease) is lost, or 2. cease all expenditures during the litigation, thus partially losing the benefit (all or a portion of the primary term) of the lease—even if the operator eventually wins the case. Landowners contend they should not be penalized (by extending the lease) for exercising their right to assert good faith claims and that operators have the power and savvy to negotiate extension provisions if desired.
After all, they argue, the express terms of the lease should control, and if it does not provide for an extension in the event of a dispute, why should the court change the terms of the agreement? Operators, on the other hand, argue that operations cost millions of dollars, and putting the operator in this Catch 22 is inequitable, depriving them of the benefits of the lease. Indeed, the cloud on title created by such a lawsuit makes any significant investment to the leasehold unpalatable, to say the least.
The Catch 22 Cure
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