Andarko Petroleum Corp. v. Thompson,
94 S. W.3d 550 (Tex. 2002); Clifton v. Koontz,
325 S. W.2d 684, 690-91 (Tex. 1959) (generally
describing “production in paying quantities”
as producing a profit, but setting forth other
factors and nuances as well; “The term
paying quantities involves not only the
amount of production, but also the ability to
market the product (gas) at a profit.”). Some
landowners and mineral estate owners have
used the production-in-paying-quantities
requirement as a basis to terminate the lease.
See In re Nueces Petroleum Corp., 2007
WL 418889 (Bankr. S.D. Tex. Feb. 2, 2007) (oil
and gas lease terminated by its own terms
due to debtor-lessee’s failure to produce in
paying quantities); In re Energytec Inc., 2009
WL 5101765 (Bankr. E.D. Tex. Dec. 17, 2009)
(similar); see also T. W. Phillips Gas and Oil
Co. v. Jedlicka, 42 A.3d 261, 268 (Pa. 2012)
(“Typically, as herein, the habendum clause
in an oil and gas lease provides that a lease
will remain in effect for as long as oil or gas
is produced ‘in paying quantities.’ [footnote
omitted] Traditionally, use of the term ‘in paying
quantities’ … was regarded as for the benefit
of the lessee, as a lessee would not want to
be obligated to pay rent for premises which
have ceased to be productive, or for which
the operating expenses exceed the income….
More recently, however, and as demonstrated
by the instant case, these clauses are relied
on by landowners to terminate a lease.”).
14 See, e.g., In re J. H. Land & Cattle Co., 8 B. R.
237 (Bankr. W. D. Okla. 1981) (applying Kansas
law; oil and gas lease is within purview of
Section 365); In re Ham Consulting Company/
William Lagnion/JV, 143 B.R. 71 (Bankr. W.D.
La. 1992) (Louisiana oil and gas lease was
executory contract and not unexpired lease of
real property for purposes of 365(d)( 4)); Texaco
Inc. v. Louisiana Land and Exploration Co.,
136 B.R. 658 (Bankr. M.D. La. 1992) (despite
acknowledging mostly passive nature of
lessor’s obligations, Louisiana mineral lease
was determined to be executory contract);
Frontier Energy, LLC v. Aurora Energy, Ltd.
(In re Aurora Oil & Gas Corp., 439 B. R. 674
(Bankr. W.D. Mich. 2010) (Michigan oil and gas
lease was true lease; “Michigan treats a lessee’s
interest as a leasehold or profit á prendre,
but not a freehold estate. In this significant
respect, Michigan departs from the law of
Texas and several other oil and gas states that
apparently regard a lessee’s interest under
an oil and gas lease as a freehold or fee.”).
15 See, e.g., In re Topco, Inc., 894 F.2d 727,
739 n. 17 (5th Cir. 1990) (under Texas law, oil
and gas lease is not unexpired lease; “the
so-called leaseholds at issue in this case
actually constitute determinable fee interests”;
opining that Oklahoma law and Louisiana
law are similar); Terry Oilfield Supply Co.,
Inc. v. Am. Security Bank, N. A., 195 B.R.
66, 73 (S.D. Tex. 1996) (“Bankruptcy courts
routinely treat oil and gas leases as falling
under the trustee’s power to reject executory
contracts and unexpired leases. In Texas, an
oil and gas lease is a fee interest, not a lease,
regardless of what bankruptcy lawyers may
think. Although ‘lease’ is in the heading of the
instrument, and ‘lease’ is in the bankruptcy
code, the code provision on executory contracts
does not apply to Texas mineral leases.”); In
re WR T Energy Corp., 202 B. R. 579 (Bankr.
W.D. La. 1996) (Louisiana oil and gas lease
was neither lease nor executory contract); In
re Clark Resources, Inc., 68 B.R. 358 (Bankr.
N.D. Okla. 1986) (applying Oklahoma law).
16 See, e.g., NGP Capital Resources Co. v. ATP
Oil & Gas Corp., Inc. (In re ATP Oil & Gas
Corp., Inc.), Case No. 12-36187, Adv. No. 12-
03443 (Bankr. S.D. Tex. 2012) (docket no. 13).
17 See, e.g., In re L. F. Jennings Oil Co., 4 F.3d
887, 890 (10th Cir. 1993) (abandonment
proper where debtor-owned property posed
no immediate threat to public health); In re
Smith-Douglass, Inc., 856 F.2d 12, 16 (4th Cir.
1988) (lower court properly determined “no
threat of immediate harm” where state agency
had not taken any enforcement action, thus
abandonment of debtor-owned fertilizer plant
was permissible); In re Better-Brite Plating, 105
B.R. 912, 917 (Bankr. E.D. Wis. 1989), vacated on
other grounds, 136 B.R. 526 (Bankr. E.D. Wis.
1990) (“The unencumbered assets in this case
are far short of the estimated … cost of cleanup,
and there is no evidence that there is any
imminent harm or danger to the public”); In re
Guterl Special Steel Corp., 316 B.R. 843 (Bankr.
W.D. Pa. 2004) (“If there is no imminent threat
to public or safety, abandonment pursuant to
section 554(a) may be permitted even though
state laws or regulations designed to protect
public health or safety will be violated as a
consequence.”; Chapter 7 trustee allowed to
abandon radioactively contaminated real
property owned by debtor); In re MCI, Inc.,
151 B.R. 103 (E.D. Mich. 1992) (abandonment of
property to EPA and other agency authorized
where there was no imminent harm to public);
In re Shore Co., Inc., 134 B.R. 572 (Bankr. E.D.
Tex. 1991) (trustee could abandon debtor-
owned contaminated refinery real and personal
property where agencies failed to demonstrate
imminent, identifiable harm; “a trustee’s right
to abandon environmentally impacted estate
property is limited only by the precondition
that the trustee remediate any imminent and
identifiable danger present on the property”;
“[V]iolation of state and federal environmental
laws is not enough to limit the trustee’s powers
of abandonment nor, is the recognition that
a former oil refinery site probably contains
some hazardous substances sufficient.”).
18 See, e.g., In re H. L. S. Energy Co., Inc., 151 F.3d
434 (5th Cir. 1998) (state’s expenses in plugging
debtor’s inactive oil wells were administrative
expenses; under Midlantic Nat’l Bank v. N.J.
Dep’t of Environmental Protection, 474 U.S.
494 (1986), debtor could not abandon property
in contravention of state law reasonably
designed to protect public health; no discussion
of immediate harm); In re Am. Coastal Energy,
Inc., 399 B.R. 805, 813 (Bankr. S.D. Tex. 2009)
(dealing with plugging of inactive oil/gas
wells; reading Midlantic “to require the Court
to determine whether the debtor is violating
a statute ‘reasonably designed to protect the
public health or safety from identified hazards,’
not the extent to which particular conduct
imposes actual and imminent threats”); In re
Appalachian Fuels, LLC, 521 B.R. 779 (Bankr.
E.D. Ky. 2014) (debtor could not abandon
coal mining properties without adhering to
federal and state remediation statutes).
19 See Leavell v. Karnes, 143 B.R. 212 (S.D. Ill. 1990)
(before abandonment of contaminated oil well,
at a minimum, immediate and identifiable
health risks must be addressed); In re Eagle-
Picher Holdings, Inc., 345 B. R. 860 (Bankr.
S.D. Ohio 2006) (“One line of cases holds that
abandonment is appropriate unless there is
a showing of an imminent danger to public
health and safety while the other line of cases
holds that abandonment is appropriate only
upon a showing of full compliance with
the applicable environmental laws.”; in this
case “the two standards create a distinction
without a difference” but court expressly
adopted tougher full compliance standard).
20 See, e.g., H. L. S. Energy Co., Inc., 151 F.3d 434
(state’s expenses in plugging debtor’s inactive
oil wells were administrative expenses); In re
Wall Tube & Metal Products, Inc., 831 F.2d 118,
122 (6th Cir. 1987) (trustee could not abandon
property (which contained drums of hazardous
substances) under Midlantic, and was also
prohibited from maintaining property in
continuous violation of state environmental
laws; the state, in remediating the property,
was performing a service already obligatory on
the part of the trustee, and state was entitled to
administrative claim; “It is undisputed that the
hazardous wastes still within the debtor’s estate
… presented a danger to the public’s health
and safety.”); In re Peerless Plating Co., 70 B.R.
943, 946-47 (Bankr. W.D. Mich. 1987) (trustee
could not abandon property in violation of
CERCLA, and EPA was entitled to administrative
claim); In re Stevens, 68 B.R. 774, 783-84
(Bankr. D. Me. 1987) (unlawful and improper
storage of hazardous substances constitutes
an imminent and identifiable danger and
costs of protecting public from that danger are
entitled to administrative claim priority; “The
court finds that conditions that will adequately
protect the public’s health and safety are
conditions that will provide for compliance
with the relevant state and local laws.”).
21 See, e.g., H. L. S. Energy Co., Inc., 151 F.3d 434;
Leavell v. Karnes, 143 B.R. 212; see also In re
ATP Oil & Gas Corp., 2014 Bankr. LEXIS 1050
(Bankr. S.D. Tex. 2014) (oil and gas debtor had
Midlantic duty to make abandoned platform
safe under state law, and thus third party
service provider who provided postpetition
“safe out work” to make the platform safe
was entitled to administrative claim).
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