Enerquest Oil & Gas, LLC v. Plains Exploration & Production Co. (981 F. Supp. 2d 575, 2013)

Citations

981 F. Supp. 2d 575

Full opinion text

ORDER: (1) GRANTING MINERAL OWNERS’ MOTION FOR PARTIAL SUMMARY JUDGMENT; (2) DENYING PXP’S MOTION FOR PARTIAL SUMMARY JUDGMENT; (3) DENYING PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT; (I) GRANTING EOG’S MOTION FOR PARTIAL SUMMARY JUDGMENT ON SEISMIC CLAIMS; (5) DENYING AS MOOT PXP’S MOTION TO SEVER; (6) DENYING PLAINTIFFS’ MOTION FOR LEAVE TO FILE THIRD AMENDED COMPLAINT

DAVID ALAN EZRA, Senior District Judge.

On October 10, 2013, the Court heard oral argument on the Opposed Motion for Leave to File Third Amended Complaint and the Motion for Partial Summary Judgment filed by Plaintiffs Chieftain Energy, LLC (“Chieftain”) and EnerQuest Oil & Gas, LLC (“EnerQuest”) (Dkt. ##107, 122); the Opposed Motion to Sever and the Motion for Partial Summary Judgment filed by Defendant Plains Exploration & Production Company (“PXP”) (Dkt. ## 105, 113), the latter of which Defendant EOG Resources, Inc. (“EOG”) has joined (see Dkt. # 124); EOG’s Motion for Partial Summary Judgment on Plaintiffs’ Seismic Claims (Dkt. # 125); and the Motion for Partial Summary Judgment filed by Denis Brysch, Karen S. Brysch, Rachel Brysch, Kevin V. Labus, Lisa Ann Labus, Adelene Manka, Edwin Moy, Leroy Moy, Leonard Moy, Jr., and Diane Pape (collectively, “the Mineral Owners”) (Dkt. # 126). John Matthew Sjoberg, Esq., and David E. Jackson, Esq., appeared on behalf of Chieftain and EnerQuest; Michael E. McElroy, Esq., appeared on behalf of PXP; J. Derrick Price, Esq., appeared on behalf of EOG; and John H.H. Bennett appeared on behalf of the Mineral Owners.

After careful consideration of the memoranda and exhibits in support of and in opposition to the motions, and in light of the Parties’ arguments at the hearing, the Court, for the reasons that follow, GRANTS the Mineral Owners’ Motion for Partial Summary Judgment (Dkt. # 126); DENIES PXP’s Motion for Partial Summary Judgment (Dkt. # 113) and EOG’s motion joining and adopting it (Dkt. # 124); DENIES EnerQuest’s Motion for Partial Summary Judgment (Dkt. # 122); GRANTS EOG’s Motion for Partial Summary Judgment on Plaintiffs’ Seismic Claims (Dkt. # 125); DENIES AS MOOT PXP’s Motion to Sever (Dkt. # 105); and DENIES EnerQuest’s Motion for Leave to File Third Amended Complaint (Dkt. # 107).

BACKGROUND

Plaintiffs EnerQuest Oil & Gas, LLC, and Chieftain Energy, LLC, are Oklahoma oil companies. Chieftain is wholly owned by its sole member, EnerQuest. (Dkt. # 66 (“SAC”) ¶¶ 5-6.) For purposes of this Order the Court will refer to these entities collectively as “EnerQuest.”

In 2008, EnerQuest acquired two oil, gas, and mineral leases in Karnes County, Texas (collectively, the “Leases”). These lands are owned by Defendants Denis Brysch, Rachel Brysch, Lisa Ann Labus, Kevin V. Labus, Karen S. Brysch, Leonard Moy Jr., Edwin Moy, Diane Pape, Leroy Moy, and Adelene Manka (collectively, the “Mineral Owners”). The Leases, which were identical in all relevant respects, had two-year primary terms and could be maintained “for so long thereafter as a covered mineral [was] produced in paying quantities” or the Leases were “otherwise maintained in effect pursuant to [their] provisions....” (Dkt. ##114-2, 114-3 (“Leases”) ¶ 2.) Among the provisions capable of extending the Leases in the absence of actual production was the following “shut-in well” clause:

[I]f, during or after the primary term one or more wells on the leased premises or lands pooled therewith are capable of producing oil and gas or other substances covered hereby in paying quantities, but such well or wells are either shut-in or production therefrom is not being sold by Lessee for a period of 90 consecutive days, then Lessee may pay shut-in royalty of one dollar per acre of land then covered by this lease, such payment to be made to Lessor on or before the end of said 90-day period and thereafter on or before each anniversary of the end of said 90-day period while the well or wells are shut-in and it shall be considered that such well is producing paying quantities for all purposes hereof during any period for which shut-in royalty is tendered; provided that if this lease is otherwise being maintained by the payment of rentals or by operations, or if a well or wells on the leased premises is producing in paying quantities, no shut-in royalty shall be due until the end of the 90-day period next following the end of the rental period or the cessation of such operations or production, as the case may be.

(Leases ¶ 3(c) (emphases added).)

Although there were a number of old wells on the leased land, none was producing at the time EnerQuest acquired the Leases in 2008. (Dkt. # 126 Ex. G at 2-3.) For almost two years, EnerQuest made no attempt to produce oil or gas from the Leases. On June 2, 2010, however, EnerQuest ran a diagnostic test on an old oil well. (Id. Ex. K at 10-11.) That well was originally completed in 1961 and had been shut in by the prior operator approximately four years prior to the diagnostic test. (Dkt. # 122 Ex. F ¶ 6.) During the production test, the well produced about 47,000 cubic feet of gas. (Id. Ex. F ¶ 7.) After approximately nine hours, its pressure and flow rate dropped too low to measure. (Dkt. #113 Ex. I at 13.) Once the test was completed, the well was shut in. (Dkt. # 122 Ex. E ¶ 12.) On June 3, 2010, EnerQuest changed out the wellhead and several valves. (Id. Ex. K at 6-7.)

Based on the results of the June 2, 2010 test, EnerQuest reclassified the old oil well as a gas well, renamed it the Brysch No. 1 Well (the “Well”), and pooled the Leases’ acreage into a single gas unit. (Dkt. # 122 Ex. C.) EnerQuest performed no additional operations on the Well before the Leases’ two-year primary terms expired on July 28, 2010, and August 4, 2010. (Dkt. # 122 at 5.)

On September 10, 2010, the Brysches’ attorney sent a letter to EnerQuest’s president, Greg Olson, stating that the Leases had terminated. (Dkt. # 126 Ex. C at 1.) On September 14, 2010, EnerQuest attempted to pay shut-in royalties to the Mineral Owners (Dkt. # 126 Ex. D at 1; Dkt. # 122 Ex. E ¶¶ 15-18), arguing that the Well, while not actually producing, was “capable of producing in paying quantities” within the meaning of the shut-in well provision excerpted above (Dkt. # 122 Ex. E ¶¶ 13, 20; Dkt. # 126 Ex. L at 1).

Believing that the Leases had expired, the Mineral Owners signed new leases with Dan Hughes Company, L.P. (“Dan Hughes”) a few weeks later. (Dkt. # 122 Exs. G-N.) In November of 2010, Dan Hughes assigned half of its interest in the new leases to Defendant EOG Resources, Inc. (“EOG”) and sold the remainder to Defendant Plains Exploration and Production Company (“PXP”). (Dkt. # 131 Exs. N, 0.)

In April 2011, EnerQuest — still maintaining that the Leases had not expired because it had timely tendered shut-in royalties — paid $84,000 to connect the Well to a pipeline so that its gas could be marketed. (Dkt. # 126 Ex. F at 1-2; id. Ex. G at 8.) Then, in early July 2011, EnerQuest began producing the well using unassisted intermittent flow. (Dkt. # 126 Ex. H at 6.) From July 20 to 22, 2011, EnerQuest acid washed and swabbed the Well’s tubing. (Id. at 11.) In January 2012, EnerQuest installed a rod pump, which enhanced and stabilized production. (Dkt. # 122 Ex. F ¶ 12.)

On June 1, 2012, EnerQuest and Chieftain filed this lawsuit against PXP, EOG, and the Mineral Owners, bringing claims for breach of EnerQuest’s leases, trespass to try title, removal of cloud on title, and declaratory relief. (Dkt. # 1 ¶¶ 33-41.) PXP and EOG brought counter-claims for trespass, trespass to try title, conversion, and declaratory relief (Dkt. # 32 ¶¶ 62-65; Dkt. # 33 ¶¶ 62-66); and the Mineral Owners brought counter-claims for bad-faith pooling, trespass, conversion, breach of contract, suit to quiet title, and declaratory relief (Dkt. # 31 ¶¶ 66-74). EnerQuest later amended its complaint to include additional claims against EOG that stem from an alleged seismic trespass. (See SAC ¶¶ 43-49.)

On June 3, 2013, PXP filed the Opposed Motion to Sever that is now before the Court. (Dkt. # 105.) Also before the Court are EnerQuest’s Opposed Motion for Leave to File Third Amended Complaint, which was filed on June 10, 2013 (Dkt. # 107); a number of cross-Motions for Partial Summary Judgment on the issue of whether EnerQuest’s leases terminated at the end of their primary terms or remain in effect (Dkt. ## 113, 122, 124, 126); and PXP’s Motion for Partial Summary Judgment on Plaintiffs’ Claims for Seismic Trespass, Assumpsit, and Right to Exclusive Possession of Seismic Information and Injunctive Relief (Dkt. # 125).

LEGAL STANDARD

Summary judgment is granted under Federal Rule of Civil Procedure 56 when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see also Cannata v. Catholic Diocese of Austin, 700 F.3d 169, 172 (5th Cir.2012). The main purpose of summary judgment is to dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The moving party bears the initial burden of demonstrating the absence of any genuine issue of material fact. Id. at 323, 106 S.Ct. 2548. If the moving party meets this burden, the non-moving party must come forward with specific facts that establish the existence of a genuine issue for trial. ACE Am. Ins. Co. v. Freeport Welding & Fabricating, Inc., 699 F.3d 832, 839 (5th Cir.2012). In deciding whether a fact issue has been created, “the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence.” Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). However, “Unsubstantiated assertions, improbable inferences, and unsupported speculation are not sufficient to defeat a motion for summary judgment.” Brown v. City of Houston, 337 F.3d 539, 541 (5th Cir.2003). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.’ ” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)).

DISCUSSION

I. The Parties’ Cross-Motions for Partial Summary Judgment on Claims Related to EnerQuest’s Leases

EnerQuest’s Second Amended Complaint brings, inter alia, claims for breach of lease and trespass to try title, suit to remove cloud and quiet title, and a request for a declaration “that the Brysch Lease and the Moy Lease are valid and effective and that the Dan Hughes Leases are invalid and of no effect.” (SAC ¶¶ 35-42.) The Parties agree that these claims all turn on whether or not EnerQuest successfully maintained the Leases beyond their two-year primary terms, and they have filed cross-motions for partial summary judgment on this issue. (Dkt. ## 113 (PXP’s motion), 122 (EnerQuest’s motion), 124 (EOG’s motion (joining and adopting PXP’s motion)), 126 (Mineral Owners’ motion).) EnerQuest seeks summary judgment “declaring that Plaintiffs have maintained the Leases ... by tendering shut-in royalty payments to the Lessors and by thereafter producing gas in paying quantities.” (Dkt. # 122 at 2.) Defendants insist that the Leases expired at the end of their primary terms because EnerQuest did not properly invoke the Leases’ shut-in royalty clauses. (Dkt. # 113 at 1; Dkt. # 126 at 1; Dkt. # 124 at 2.) Specifically, EOG and PXP assert that EnerQuest’s tender of shut-in royalties was ineffective because the Well was incapable of producing in paying quantities. (See Dkt. # 113 at 1; Dkt. # 124 at 2.) The Mineral Owners separately assert that shut-in royalties were ineffective both because the Well was incapable of production in paying quantities and because those royalties were untimely tendered. (See Dkt. # 126 at 1.) For the reasons that follow, the Court concludes that there is a genuine issue of material fact as to whether the Well was capable of production in paying quantities when it was shut in and that summary judgment on that issue is therefore inappropriate. However, the Court concludes that there is no genuine dispute as to whether shut-in royalties were timely tendered: They were not, and the Leases therefore expired at the end of their primary terms.

A. Background on Texas Oil and Gas Leases

A Texas mineral lease grants a fee simple determinable to the lessee. Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 554 (Tex.2002). “Consequently, the lease may continue indefinitely, as long as the lessee uses the land for its intended purpose,” but it “will automatically terminate if the event upon which it is limited occurs.” Id. (citing Tex. Co. v. Davis, 113 Tex. 321, 254 S.W. 304, 306 (1923)).

A lease’s habendum clause defines the mineral estate’s duration. See id.; Grinnell v. Munson, 137 S.W.3d 706, 714 (Tex.App.2004). “[A] typical habendum clause states that the lease lasts for a relatively short fixed term of years (primary term) and then ‘as long thereafter as oil, gas or other mineral is produced’ (secondary term).” Anadarko, 94 S.W.3d at 554; accord Grinnell, 137 S.W.3d at 714.

During the short primary term, the lessee generally conducts the necessary operations to complete a well whose production will hold the lease into the secondary term. See AFE Oil and Gas, L.L.C. v. Armentrout, 2-07-100-CV, 2008 WL 623980, at *2 (Tex.App. Mar. 6, 2008) (citing Fox v. Thoreson, 398 S.W.2d 88, 91 (Tex.1966)); Patrick H. Martin and Bruce M. Kramer, Williams & Meyers, Oil and Gas Law Abridged Fifth Edition [hereinafter Williams & Meyers, Oil and Gas Law Abridged Ed.] § 812 (LexisNexis Matthew Bender 2013). Many modern leases contain drilling and rental clauses that require the lessee to commence drilling operations within a certain period of time or to make additional payments — known as “delay rentals” — to maintain the lease without drilling. See Williams & Meyers, Oil and Gas Law Abridged Ed. §§ 601.5, 605; In re Estate of Slaughter, 305 S.W.3d 804, 811 (Tex.App.2010) (“ ‘Delay rental’ is defined as ‘a periodic payment made by an oil-and-gas lessee to postpone exploration during the primary lease term.’ ” (quoting Black’s Law Dictionary 1411)). Delay rental clauses provide both a time period covered by each payment (usually one year) and the amount due at the beginning of each period. See Williams & Meyers, Oil and Gas Law Abridged Ed. § 606. A typical “unless”-type delay rental clause reads as follows:

3. Rental Payment. If on or before the first anniversary date hereof operations for the drilling of a well for oil or gas or other substances covered hereby have not been commenced on the leased premises or lands pooled or unitized therewith, or if there is no production in paying quantities from the leased premises or lands pooled or unitized therewith, then ... this lease shall terminate as to both parties unless lessee on or before that date pays or tenders to lessor or to lessor’s credit in [name of bank] at [address of bank], ... the sum of $[dollar amount of sum] as rental covering the privilege of deferring the commencement of operations for the drilling of a well for a period of [number of months] months from said anniversary date....

6 West’s Tex. Forms, Minerals, Oil & Gas § 3:3 — Oil, gas and mineral lease — “Unless” form — With pooling provision — Modern form (emphases added); see also Williams & Meyers, Oil and Gas Law Abridged Ed. § 605.2 (explaining that such a clause “commonly ... begins with a statement introduced by the word ‘if concerning some supposition as to operations or production, followed by a provision for the termination of the lease unless certain rentals are paid”).

In general, if a lessee has not achieved actual production by the end of the primary term, or if actual production ceases during the secondary term — which lasts “as long as oil or gas is produced”— the lease automatically terminates. Anadarko, 94 S.W.3d at 554. However, to avoid termination of a non-producing lease, most modern leases contain savings clauses such as “shut-in royalty” clauses. See Williams & Meyers, Oil and Gas Law Abridged Ed. § 605.2. A shut-in royalty clause allows a lessee to extend a lease beyond the primary term by paying a specified royalty if the well is capable of producing oil or gas but is not actually doing so — that is, if the well is “shut in.” See Marifarms Oil & Gas, Inc. v. Westhoff, 802 S.W.2d 123, 125 (Tex.App.1991) (“[A] lease will not terminate for lack of production if the shut-in clause is complied with.”); 55 Tex. Jur.3d Oil and Gas § 283 (“The basic function of [shut-in royalty] clauses is to enable leases to continue in operation by virtue of the existence of wells capable of, but not actually engaged in, production.”). In other words, shut-in royalty clauses define the circumstances under which a lessee can “bring about constructive or contractual production” sufficient to keep the lease in effect after the expiration of the primary term. Gulf Oil Corp. v. Reid, 161 Tex. 51, 58, 337 S.W.2d 267 (1960).

“Because payment of a shut-in royalty is a substitute for production that keeps the lease in effect, failure to make a timely shut-in payment is the equivalent of cessation of production, and the lease automatically terminates.” Amber Oil & Gas Co. v. Bratton, 711 S.W.2d 741, 743 (Tex.App.1986) (citing Freeman v. Magnolia Petroleum Co., 141 Tex. 274, 278, 171 S.W.2d 339 (1943)). “The rule is generally applied rigidly against the lessee because time is of the essence in an oil and gas lease.” Amber Oil, 711 S.W.2d at 743; see also Fain Family First Ltd. P’ship v. EOG Res., Inc., No. 02-12-00081-CV, 2013 WL 1668281, at *3 (Tex.App. Apr. 18, 2013) (noting that “[c]ourts construe shut-in royalty clauses strictly”). Thus, while “courts may generally be opposed to the construction which causes automatic termination, ... the policy behind that rule does not apply to leases for oil and gas,” the main purpose of which is “to obtain production.” Riley v. Meriwether, 780 S.W.2d 919, 923 (Tex.App.1989) (citing Williams & Meyers, 3 Oil and Gas Law § 604 (1989)); see also Woodson Oil Co. v. Pruett, 281 S.W.2d 159, 164 (Tex.Civ.App.1955) (“There is no principle of forfeiture involved when a lease is terminated by its own provisions for cessation of production”).

B. Relevant Provisions of the Leases at Issue

The Leases’ habendum clauses were identical and provided as follows:

2. Term of Lease. This lease shall be in force for a primary term of 2 years from the effective date hereof, and for as long thereafter as a covered mineral is produced in paying quantities from the leased premises or this lease is otherwise maintained in effect pursuant to the provisions hereof.

(Leases ¶ 2.) The Leases also contained shut-in royalty clauses, which stated, in relevant part:

(Leases ¶ 3(c) (emphases added).)

C. There Is a Genuine Issue of Material Fact as to Whether the Well Was Capable of Production in Paying Quantities

As explained above, a shut-in royalty clause allows a lessee to avoid termination of the lease only if: (1) shut-in royalties are timely tendered and (2) the well was capable of producing oil or gas in paying quantities at the time shut-in royalties were tendered. See Hydrocarbon Mgmt., Inc. v. Tracker Exploration, Inc., 861 S.W.2d 427, 432-33 (Tex.App.1993) (“[F]or a well to be maintained by the payment of shut-in royalties, it must be capable of producing gas in paying quantities....”); 55 Tex. Jur.3d Oil and Gas § 283 (“The basic function of [shut-in royalty] clauses is to enable leases to continue in operation by virtue of the existence of wells capable of, but not actually engaged in, production.”).

The phrase “capable of production in paying quantities” sets up a two-prong test. First, the well must be “capable of production,” meaning that “if the well is turned ‘on,’ ... it begins flowing, without additional equipment or repair.” Anadarko Petroleum Corp. v. Thompson, 94 S.W.3d 550, 558 (Tex.2002) (emphasis added) (quoting Hydrocarbon Mgmt., Inc. v. Tracker Exploration, Inc., 861 S.W.2d 427, 433-34 (Tex.App.1993)). A well would not be considered capable of production “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.” Id. (quoting Hydrocarbon, 861 S.W.2d at 433).

Second, the well must be capable of producing in “paying quantities,” which means there must be “facilities located near enough to the well that it would be economically feasible to establish a connection so that production could be marketed at a profit.” Id. at 559 (emphasis added). Any profit, “even small, over operating expenses,” is sufficient to satisfy this test, even though the lessee “may never repay its costs, and the enterprise as a whole may prove unprofitable.” Clifton v. Koontz, 160 Tex. 82, 89, 325 S.W.2d 684 (1959); see also Blackmon v. XTO Energy, 276 S.W.3d 600, 603 (Tex.App.2008) (“[T]he ‘paying quantities’ part of the definition requires that income from the sale of the gas must exceed production and marketing costs.” (citing Anadarko, 94 S.W.3d at 559)).

Thus, to determine whether the Well was capable of production in paying quantities at the time EnerQuest tendered shut-in royalties, both of the following questions must be answered in the affirmative: (1) Would the Well have “produced,” without additional equipment or repair, if it had been turned “on”? And (2) would EnerQuest have been able to market the oil or gas produced at a profit ? For the reasons that follow, the Court concludes that there is a genuine issue of material fact as to whether the Well was capable of production in paying quantities.

1. Would the Well Have “Produced” If It Had Been Turned On?

The Parties agree about the condition the Well was in at the end of the Leases’ primary terms; they disagree about whether a well in that condition should be considered “capable of production.” Specifically, the Parties disagree as to whether the lack of surface facilities is a relevant factor in this analysis.

EnerQuest argues that surface facilities are not relevant: “ ‘Capable’ of production,” insists EnerQuest, “does not contemplate actual production and focuses only on the well, requiring that it be fully equipped and operational, but not requiring that all equipment downstream from the well be in place and operational.... ” (Dkt. # 122 at 8 (emphases added).) “[T]he undisputed evidence,” EnerQuest argues, “establishes that the Well itself was fully equipped and would have produced gas when Plaintiffs shut it in.” (Dkt. # 119 at 4.) “[T]he only equipment missing when the Well was shut in was a separator, meter run, and flowline, and ... the foregoing equipment is all located on the surface on the Well and not in the Well.” (Id.) The purpose of a shut-in royalty clause, says EnerQuest, is “to permit the lessee to negotiate a contract for produced gas and, if successful in doing so, to give the lessee time to repair, install, or construct surface equipment to treat the produced minerals and transport them to a nearby pipeline.” (Id.) “This is precisely what Plaintiffs did during the time they shut-in the Well.” (Id.)

In support of this argument, EnerQuest cites Blackmon v. XTO Energy, 276 S.W.3d 600 (Tex.App.2008). (See Dkt. # 133 at 8-9.) In that case, the court rejected the lessors’ contention that the well at issue was not capable of producing in paying quantities because the lessee “could not sell the gas flowing from the well without installing the amine processing unit to satisfy the carbon dioxide requirements of [its contract].” Id. at 603. Citing Anadarko, the lessors had argued that the well at issue “was not capable of production in paying quantities ‘because it needed additional equipment or repairs in order to produce marketable gas.’ ” Id. However, the Blackmon court disagreed, insisting that “[t]he focus is on whether the well is capable of producing gas in a marketable quantity, not a marketable quality.” Id. Finding that “raw gas was capable of flowing from the wellhead ... in a marketable quantity,” the Blackmon court concluded that the well was “capable of producing in paying quantities when it was shut in.” Id. In the instant case, argues EnerQuest, the Well itself was complete and functional, and the fact that surface equipment “downstream” from the Well was missing is irrelevant. (Dkt. # 119 at 3.)

Defendants, of course, disagree. First, they argue that, “in order to ‘produce’ a well, the operator must actually take oil or gas from the well in a captive state for either storing or marketing the product for sale.” (Dkt. # 126 ¶ 26 (citing Riley v. Meriwether, 780 S.W.2d 919, 923 (Tex.App.1989)).) “ ‘[P]roduce’ means more than spilling raw hydrocarbons onto the ground or venting them into the atmosphere,” insist Defendants. The Well was not equipped with a separator (which separates oil, gas, and water), a meter run (a gas measurement device), or a fiowline (which connects these pieces of equipment) when the Leases’ primary terms expired (id. Ex. K at 9, 14-20), but Defendants insist that a well must have these surface facilities in order to be capable of production. Without a tank, oil and condensate could not be stored. (Id. at 19.) Without a separator, gas could not be purified into marketable form. (Id. at 18-19.) The test is not whether gas would have begun “flowing” if turned on, say Defendants; it is whether the Well would have “produced” — and “production” means marketable oil or gas. (Dkt. # 128 ¶ 32.) While Defendants acknowledge that a well “does not actually have to be hooked up to a commercial pipeline in order to be capable' of producing in paying quantities,” they insist that it “must have everything needed to produce once connected, so that when it is connected and switched on, it can immediately begin producing.” (Id. ¶ 34.) Because the Well was not capable of capturing gas and reducing it to a marketable state, argue Defendants, it was not capable of “production” at the end of the Leases’ primary terms. (Id. ¶¶ 33-34.)

In support of their argument, Defendants explain that the word “production” has different meanings in different contexts. (Dkt. # 126 ¶¶ 28-31.) In the royalty context, where a royalty is generally defined as a share of the “production” from a lease, Texas courts have held that “production costs” are “the expenses incurred in exploring for mineral substances and in bringing them to the surface.” Cartwright v. Cologne Prod. Co., 182 S.W.3d 438, 444 (Tex.App.2006) (emphasis added) (citing Parker v. TXO Prod. Corp., 716 S.W.2d 644, 648 (Tex.App.1986)). “Post-production costs,” on the other hand, include “taxes, treatment costs to render the gas marketable, compression costs to make it deliverable to a purchaser’s pipeline, and transportation costs.” Id.; see also Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 122 (Tex.1996) (“Post-production marketing costs include transporting the gas to the market and processing the gas to make it marketable.”). In other words, Defendants acknowledge that, in the royalty context, “production” does end at the wellhead. (Dkt. # 126 ¶ 29.)

By contrast, argue Defendants, in the context of determining whether a lease’s habendum clause is satisfied because the well is “producing,” Texas courts have used a different definition: “The word ‘production’ means marketable oil or gas.” Rogers v. Osborn, 152 Tex. 540, 542, 261 S.W.2d 311 (Tex.1953) (emphasis added) (citing Garcia v. King, 139 Tex. 578, 164 S.W.2d 509 (1942)); see also Holchak v. Clark, 284 S.W.2d 399, 401 (Tex.Civ.App. 1955) (“Production has a commercial connotation. It means marketable oil or gas.” (emphasis added)). In other words, production requires that the oil or gas (1) be taken from the well “in a captive state” (2) for storage or marketing. See, e.g., Ice Bros., Inc. v. Bannowsky, 840 S.W.2d 57, 60 (Tex.App.1992) (explaining that, in order to show that the well had “produced,” there had to be “some evidence ... that first, gas was being taken from the Brook-shier Well in a captive state, and second, that the gas so taken was either stored or marketed” (emphases added)); Riley v. Meriwether, 780 S.W.2d 919, 923 (Tex.App.1989) (“Production of a well involves actually taking oil or gas from the well in a captive state for either storing or marketing the product for sale.” (emphasis added)); 2-26 Kuntz, Law of Oil and Gas § 26.6 (noting that “[i]n Texas, production of gas requires that it be taken from the well in a captive state and either marketed or stored” (emphasis added)). The Blackmon court determined that “production” was complete at the wellhead, Defendants insist, because it inadvertently overlooked the distinction between “production” in the context of royalty payments and “production” in the context of habendum and shut-in royalty clauses. (Dkt. # 126 ¶¶ 28-29.) In the context of habendum and shut-in royalty clauses, say Defendants, “capable of production” means capable of taking marketable oil or gas. (Id. ¶ 29.)

While Defendants’ argument is attractive in certain respects, the Court is not convinced that the definition they propose is consistent with Anadarko and Hydrocarbon — or that it would be a workable standard in practice. First, as EnerQuest notes, both Anadarko and Hydrocarbon focus on the well itself — whether the well needs additional equipment or repair— rather than on surface equipment:

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.

Anadarko Petroleum Corp., 94 S.W.3d at 558 (emphases added) (quoting Hydrocarbon, 861 S.W.2d at 433-34). The term “well,” in turn, is defined as the “ ‘orifice in the ground made by drilling, boring or any other manner, from which any petroleum or gas is obtained or obtainable Petro Pro, Ltd. v. Upland Res., Inc., 279 S.W.3d 743, 751 (Tex.App.2007) (quoting Williams & Meyers, Oil and Gas Law, Manual of Terms, 107, 1207 (9th ed.1998)); see also Kothmann v. Boley, 158 Tex. 56, 308 S.W.2d 1, 3 (1957) (“A well is a shaft or hole bored or sunk in the earth through which the presence of minerals may be detected and their production obtained.”). Consistent with this definition, all of the equipment Anadarko and Hydrocarbon mention as being necessary for a well to be capable of production — rods, tubing, and pumping equipment — are part of the well itself, not separate surface equipment. See Anadarko Petroleum Corp., 94 S.W.3d at 558; Hydrocarbon, 861 S.W.2d at 433-34. Had those courts intended to promulgate the standard Defendants propose — and had they understood the term “well” to encompass more than the definitions given above — they easily could have said something like: “We believe that the phrase ‘capable of production in paying quantities’ means a well that will capture paying quantities of marketable oil or gas if the well is turned ‘on,’ and it begins flowing, without additional equipment or repair.” In the same vein, they easily could have included among the examples of necessary equipment a piece of surface equipment, such as a tank, a separator, or any other equipment necessary to treat, measure, or transport oil or gas. However, neither court did so. Instead of focusing on whether oil or gas could be “captured” or made “marketable,” both courts agreed that the test was whether oil or gas would “flow” when the well was turned on, a choice of words that confirms that the relevant inquiry is whether the well is equipped to permit gas to flow from the wellhead. See Blackmon, 276 S.W.3d at 603 (explaining that “the Anadarko definition focuses on equipment or repairs necessary for raw gas to flow from the wellhead when the switch is turned ‘on’ rather than on equipment installed downline to refine the raw product to marketable form equipment”).

While Defendants acknowledge that a well need not be connected to a pipeline to be capable of production, they insist that “the well must have everything [else] needed to produce once connected, so that when it is connected and switched on, it can immediately begin producing.” (Dkt. # 128 ¶ 34 (emphasis added).) However, Defendants cite no authority for this proposition. Nor do Defendants provide a compelling explanation for why their strict, all-inclusive requirement — “everything needed to produce” — should not include a pipeline connection. A well cannot actually produce gas without pipeline facilities, yet Anadarko clearly holds that pipeline is not among the equipment that must be present and in working order when a well is shut in. See 94 S.W.3d at 553, 558; see also id. at 558 (citing Peveto v. Starkey, 645 S.W.2d 770, 771 (Tex.1982), for the proposition that “a well is capable of production if it is shut-in because there is no available pipeline ” (emphasis added)). The Court can discern no relevant distinction between pipelines and other surface facilities designed to treat and transport oil and gas obtained from a well; nor does the Court have any reason to think that the Anadarko court was drawing a line at “everything needed to produce- — except pipelines” rather than drawing that line at the wellhead, requiring only that the well itself be fully equipped and operational.

Defendants argue that “logic” weighs against the Blackmon court’s interpretation of “capable of production,” because “[i]f a well can be said to ‘produce’ for the purposes of a habendum clause or a savings clause simply because raw hydrocarbons emerge from its wellhead when it is opened, then a lessee could preserve a lease beyond its primary term by venting marketable quantities of unmarketable raw gas into the atmosphere.... ” (Dkt. # 126 ¶ 30.) However, Defendants’ standard (“everything needed to produce — except pipelines”) is vulnerable to a similar criticism, the only difference being that the gas wasted would be marketable.

In the Court’s view, logic and policy considerations weigh in favor of the standard proposed by EnerQuest and applied by the court of appeals in Blackmon. Actual production is a complicated process involving, among other things, opening numerous valves, setting choke sizes, and using separators, compressors, heater treaters, dehydration units, line heaters, and other devices. Applying Defendants’ standard would mean that if there were a failure at any of the many points in this complex chain, anywhere before the gas entered the pipeline, a well would be in need of “repair” and would be -declared incapable of production. See Anadarko Petroleum Corp., 94 S.W.3d at 558 (explaining that a well is incapable of production if it needs “additional equipment or repair”). As an extreme example, if even a simple fuse were to blow on the well, and if that fuse could not be repaired for ninety days (due to weather conditions, lack of an appropriate part to repair the fuse, or lack of knowledge of the problem), the lease would terminate. The Court doubts that this is the standard the Supreme Court of Texas meant to impose in Anadarko.

The realities of gas production also support this conclusion, because it is often undesirable to install certain surface equipment until a pipeline hookup has been secured. (See Dkt. # 126 Ex. H (“Smith Report”) at 5 (explaining that there may be “dependencies between production facility construction and pipeline connection” such that it “may not make sense to construct facilities until the date of connection can be estimated with reasonable certainty”).) For example, different pipelines have different pressure requirements, and operators must install specialized equipment to meet those requirements. See Ashleigh L. Boggs, Anadarko Petroleum Corp. v. Thompson: Interpretation of Oil and Gas Lease Habendum Clauses in Texas and Why Oklahoma Should Maintain Its Divergent Approach to Keep Leases Alive, 61 Okla.L.Rev. 341, 365 (2008). If a gas well’s pressure is lower than the line’s required pressure, a piece of equipment known as a compressor must be attached so the gas may be transported through the pipeline and marketed. Id. By contrast, if the well’s pressure is higher than the line’s threshold, the operator must install equipment to regulate the pressure. Id. Under either scenario, the operator cannot determine which equipment, if any, is required until it knows the pipeline requirements. Id. More generally, an operator may not wish to install surface equipment merely to have it sit idle in the field, risking weather damage or theft, while the well is shut in.

In light of the foregoing, the Court concludes that the lack of surface facilities, or the fact that surface facilities may need repair, does by itself not render a well incapable of production. In so concluding, the Court approves of and follows the decision of the Tenth Court of Appeals in Blackmon. See Blackmon, 276 S.W.3d at 603 (holding that a well was capable of producing in paying quantities despite lacking an amine processing unit because “raw gas was capable of flowing from the wellhead ... in a marketable quantity”); accord Levin v. Maw Oil & Gas, LLC, 290 Kan. 928, 948, 234 P.3d 805, 819 (2010) (“Under Kansas case law ..., the factors to be considered by the factfinder in determining whether a well is physically complete and capable of producing in paying quantities, i.e., shut-in, are those that affect the properties and potential of the well itself, rather than the likely success of any processing or transport of product that remains to be attempted or accomplished.” (emphases added)).

2. Would the Well Have Produced in “Paying Quantities”?

Defendants insist that even if the Well was not rendered incapable of production by the lack of surface facilities, it was not capable of production “in paying quantities,” because “its potential production was too meager to justify the cost of connecting it to a pipeline.” (Dkt. # 126 ¶ 23; accord Dkt. # 128 ¶¶ 39-43.) EnerQuest, by contrast, insists that it is entitled to summary judgment on this issue because there is no genuine dispute that the Well was capable of production in paying quantities. (Dkt. # 122 at 10.) However, while the Parties suggest that no material facts are in dispute, the Court disagrees: There is a genuine dispute of material fact as to whether the Well was capable of yielding a profit over a “reasonable period of time” and as to whether a reasonably prudent operator would have continued to operate the Well in the manner in which it was operated.

i. “Paying Quantities” Analysis

To determine whether a well is producing in paying quantities, a court must first ascertain “whether the production yields a profit after deducting operating and marketing costs.... ” Evans v. Gulf Oil Corp., 840 S.W.2d 500, 503 (Tex.App.1992) (emphasis added) (citing Pshigoda v. Texaco, Inc., 703 S.W.2d 416, 418 (Tex.App.1986); Ballanfonte v. Kimbell, 373 S.W.2d 119, 120-21 (Tex.Civ.App.1963)). Included among operating costs are “fixed or periodic cash expenditures incurred in the daily operation of a well,” such as “taxes, overhead charges, labor, repairs, depreciation on salvable equipment, if any, and other such items of expense, if any.” Pshigoda v. Texaco, Inc., 703 S.W.2d 416, 418 (Tex.App.1986) (citing Skelly Oil Co., 356 S.W.2d at 781). Marketing costs include the cost of connecting the well to a pipeline. See Archer v. Skelly Oil Co., 314 S.W.2d 655, 663 (Tex.Civ.App.1958) (concluding that “the expense of pipe line facilities is part of the operating and marketing expense”); see also Anadarko, 94 S.W.3d at 559 (“[T]here must be facilities located near enough to the well that it would be economically feasible to establish a connection so that production would be marketed at a profit.” (emphasis added)); Hanks, 24 S.W.2d at 6 (holding that there was no evidence that a well was capable of production in paying quantities where there was “[no] evidence tending to show that the well was situated in such proximity to any prospective market which would justify the construction of a pipe line for marketing same” (emphasis added)). Contra Pray v. Premier Petroleum, Inc., 233 Kan. 351, 357, 662 P.2d 255 (1983) (explaining that under Kansas law, “[pipeline costs fall in the same category as costs of drilling and equipping a well” and “should not be taken into account” when determining whether a well will produce in paying quantities). On the other hand, “one-time investment expenses, such as drilling and equipping costs[,] are to be treated as capital expenditures” and are not to be counted against income. Pshigoda, 703 S.W.2d at 418.

“There is no arbitrary period, “whether it be days, weeks, or months, to be considered in determining’ ” whether a well has yielded a profit. Peacock v. Schroeder, 846 S.W.2d 905, 909 (Tex.App.1993) (citing Clifton, 325 S.W.2d at 690). “Rather, profitability is to be determined over ‘a reasonable period of time under the circumstances.’ ” Id. (citing Clifton, 325 S.W.2d at 691; Pshigoda, 703 S.W.2d at 419); see also Dreher v. Cassidy Ltd. P’ship, 99 S.W.3d 267, 269 (Tex.App.2003) (holding, where the well was not profitable for eight months, that the lessor was not entitled to summary judgment because it had “produced no evidence to show why the eight-month period was a reasonable period of time” over which to determine profitability). If the well’s production is sufficient to yield a profit, however small, over operating and marketing expenses— even though the cost of drilling the well may never be repaid- — -the test is satisfied and the inquiry ceases. Garcia, 164 S.W.2d at 511-12; Hydrocarbon Mgmt., Inc., 861 S.W.2d at 432 n. 4.

Even if a well has not yielded a profit over a reasonable period of time, a lease will not terminate for lack of production in paying quantities if a “prudent operator would continue, for profit and not for speculation, to operate the well as it has been operated.” Evans, 840 S.W.2d at 503 (emphasis added). In other words, to terminate a lease, a lessor must demonstrate both that the well has not produced in sufficient quantities to yield a profit over a reasonable period of time and “that a reasonably prudent operator would not have continued under the circumstances in the attempts devoted to obtaining such production.” Cannon v. Sun-Key Oil Co., Inc., 117 S.W.3d 416, 422 (Tex.App.2003) (citing Ballanfonte v. Kimbell, 373 S.W.2d 119, 120-21 (Tex.Civ.App.1963)); see also Evans, 840 S.W.2d at 503 (explaining that to terminate a lease, both questions must be answered in the negative); Patton v. Rogers, 417 S.W.2d 470, 474 (Tex.Civ.App. 1967) (“[T]he law is well settled that even if a finding of no production in paying quantities is sustainable, in order to terminate the lease, there must also be a finding that a reasonably prudent operator would not have continued to operate the lease under the circumstances.”).

Whether it is reasonable to expect profitable returns from a well is necessarily a fact-specific inquiry. As the court explained in Hanks v. Magnolia Petroleum Co.,

[w]hat might be determined to be gas in paying quantities in one well would not be so considered in another located in a different territory. A well producing much less gas than the one drilled by [the lessee] might be in paying quantities because of existing pipe line facilities furnishing a means of marketing the gas at a profit above the cost of operating the well. On the other hand, a well producing a large amount of gas drilled in territory remote from any market and without pipe line facilities might not be in paying quantities, unless it was shown that the amount of gas produced was sufficient to justify the construction of transportation facilities and the marketing of such gas would yield a return over and above the expense of providing the same.

24 S.W.2d 5, 6 (Tex.Com.App.1930).

Critically, when determining whether EnerQuest had “a reasonable basis for the expectation of profitable returns” from the Well, the relevant time period is the end of the Leases’ primary terms. See Hanks, 24 S.W.2d at 6-7 (“The burden was upon [the lessee] to prove that there was a reasonable expectation and probability of a market for the gas produced from his well at the time of its completion. The true test was as to whether the gas was in paying quantities under the conditions existing in 1909. The question could not properly be determined by the situation presented in 1923.”). If EnerQuest did not have a reasonable expectation of profitable returns from the Well at that time, based solely on the information available to it at the end of the Leases’ primary terms, the shut-in royalties were not effective, and the Leases automatically terminated for lack of production.

ii. Potential Production and Revenue as of the End of the Leases’ Primary Terms

EnerQuest asserts that “from its first month of production in July 2011 to September 2012, the Well produced a net profit to Plaintiffs of over $82,000.00, thus confirming the Well produced in paying quantities.... ” (Dkt. # 122 at 15 (citing id. Ex. F).) However, the start of that period is over a year after the Well was shut in, and during that time EnerQuest performed work that increased the Well’s production. In July 2011, for example, EnerQuest acidized and swabbed the well-bore, which more than doubled its rate of production. {See Dkt. # 122 Ex. F (“Smith Aff.”) Ex. 3; Dkt. # 128 Ex. H at 43-44.) In January of 2012, the Well’s production increased even more after — in the words of EnerQuest’s own expert — it “was worked over ... to install a rod pump, and at the same time, replace the tubing string.” (Smith Report at 11; accord Dkt. #113 Ex. 1-28 at 3; Dkt. # 128 Ex. H at 45.) Again, the relevant question is whether the Well was capable of producing in quantities sufficient to recoup the cost of the pipeline hookup and other operating and marketing costs if it had produced long term in the state it was in at the end of the Leases’ primary terms, not what it was capable of producing after additional equipment was installed and repairs were performed at a later time. Basing this determination on the Well’s capability with additional equipment and after repairs would be inconsistent with Anadarko’s definition of “capable of production in paying quantities.” See Anadarko Petroleum Corp., 94 S.W.3d at 558 (“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.” (emphases added)); id. (“To be ‘capable of producing gas,’ we conclude that a well must be capable of producing gas in paying quantities without additional equipment or repairs.” (emphasis added)). In other words, while the Court agrees with EnerQuest that the Well was not rendered incapable of production merely because it lacked surface facilities, the paying-quantities analysis must still look to the quantities of oil and/or gas the Well would have produced if it had been turned “on” on the date it was shut in; its capability with additional equipment or repair is not relevant.

By the time the Leases’ primary terms ended, EnerQuest had opened the Well one time and had performed a nine-hour deliverability test. (Dkt. # 122 Ex. F ¶ 7.) It had also changed out the wellhead and several valves. (Id. Ex. K at 6-7.) Had EnerQuest made no attempt to produce the Well after that time, the Court would be faced with the even more difficult task of speculating about what information a reasonable operator might have gleaned from the deliverability test and about how much operating and marketing costs may have been. However, even after the Mineral Owners asserted that the Leases had terminated, EnerQuest attempted to produce the Well, providing the Court with some evidence of the Well’s capabilities at the relevant time period. Specifically, in early July 2011, EnerQuest began intermittently producing the Well. (Dkt. # 126 Ex. I at 19; Smith Report at 6.) At this time, EnerQuest had installed surface facilities but had not yet made changes to the Well that would have increased its production. (Dkt. # 126 Ex. I at 19; Smith Report at 6.)

According to EnerQuest’s expert, S. Tim Smith, when EnerQuest produced the Well from July 7 to July 19, 2011, using intermittent unassisted flow, the Well produced oil and gas worth $696.41. (Smith Report at 14.) The Parties disagree about which of EnerQuest’s expenses should be included among the operating costs counted against this revenue. (Compare Smith Report at 14 (listing total operating expenses during this time period as $430.91), with Dkt. #128 Ex. A (“Howell AS.”) ¶¶ 8-10 (asserting that Smith incorrectly excluded from operating costs the charges from the consultant who supervised field work on the Well; the costs of treating the Well with acid; the costs of swabbing the Well, which allegedly would have had to occur every three months or so; the costs of attempting to install a plunger unit to stabilize production; and certain overhead costs).) However, even assuming that EnerQuest is correct and that total operating costs during that period were just $430.91, revenue exceeded operating costs by less than $21 per day. (See Smith Report at 14 (asserting that from July 7 to July 19, 2011, revenue exceeded operating costs by $265.50).) Of course, actual profit of even one dollar is sufficient to find as a matter of law that a well produced in paying quantities — but EnerQuest’s expert did not include the cost of the pipeline hookup in this tabulation. (See id.) Again, as EnerQuest concedes elsewhere (see Dkt. # 130 at 6-7), under Texas law pipeline costs fall into the category of marketing expenses that the lessee must be able to recoup within a reasonable period of time. See Anadarko, 94 S.W.3d at 559; Archer; 314 S.W.2d at 663; Hanks, 24 S.W.2d at 6. If that $84,000 expense is taken into account, and if the Well was capable of producing enough oil and gas to exceed operating costs by just $21 per day, it would still have taken EnerQuest almost eleven years just to recoup the costs of the pipeline hookup ($84,000 -h $21/day -f- 365 days/year = 10.96 years). Eleven years may well not be a reasonable period of time over which to recoup marketing and operating costs.

This analysis is made even more complicated by the fact that the Well was capable of producing significantly more — and did in fact produce significantly more — after EnerQuest, from July 20 to 22, 2011, acid washed the tubing and swabbed to recover the wash residue. In an exhibit attached to his affidavit, EnerQuest’s expert, S. Tim Smith, presents figures demonstrating that the Well yielded over $27,000 in excess of operating expenses (not including pipeline costs) from July to December of 2011. (See Smith Aff. Ex. 3.) According to Defendants’ expert, Terry Payne, these washing and swabbing operations constituted a “workover” of the Well, and thus the Well’s capability after these operations (i.e., its capability after July 20, 2011) should not be considered in the paying-quantities analysis. (Dkt. #113 Ex. I (“Payne Report”) at 12-13.) However, EnerQuest’s expert, S. Tim Smith, insists that “[a] workover is an operation requiring a material expense that results in ... a material change to the mechanical configuration of the wellbore” and that a swabbing operation does not constitute a work-over because it “is a minor expense, and does not cause a mechanical change to the wellbore.” (Smith Report at 11.) Smith further explains that “[i]t would not make sense to perform the swabbing operation until it was time to produce the well lest it may have to be performed again.” (Id.) In other words, Smith insists that the Well’s production during this time should be considered evidence of what the Well was capable of producing at the time it was shut in. To place Smith’s testimony in the context of Anadarko’s holding, Smith appears to be arguing that the operation neither installed “additional equipment” nor constituted “repairs.” See Anadarko, 94 S.W.3d at 558.

Whether the operations EnerQuest performed from July 20 to 22, 2011, constituted a “workover” of the Well is the first of a number of genuine issues of material fact that preclude summary judgment on the question of whether the Well was capable of production in paying quantities. If Defendants’ expert is to be believed, these were substantial operations that materially changed the way the Well operated. On the other hand, if EnerQuest’s expert is correct — if this is a minor operation, one that makes no mechanical changes to a well and that is generally not performed until a well is connected to a pipeline and ready to produce — then it would seem that the Well, at the time it was shut in, was “capable of producing” the amount of gas that it did produce from July to December of 2011.

Assuming that EnerQuest is correct and that the washing and swabbing operation did not constitute a “workover” of the Well, there is still a genuine issue of material fact as to whether EnerQuest would have recouped its operating and marketing costs within a “reasonable” period of time. At a rate of $27,000 every six months, EnerQuest would have recouped the cost of the pipeline hookup in approximately two years. But is this a “reasonable” period of time? The Court has no way of making that determination, because the Parties have presented no evidence as to what is a reasonable amount of time over which to recoup operating and marketing costs. Perhaps it is common for oil and gas companies not to recoup the cost of a pipeline hookup for five years. On the other hand, it may be that in the oil and gas industry there is consensus that a “reasonable” period of time to recoup such costs is, for example, a year or less. The Court simply cannot interpose its own view one way or the other without an adequate and credible foundation upon which to determine what constitutes a “reasonable” period of time. See Dreher, 99 S.W.3d at 269 (holding, where the well was not profitable for eight months, that the lessor was not entitled to summary judgment because it had “produced no evidence to show why the eight-month period was a reasonable period of time” over which to determine profitability).

On the other hand, if Defendants are correct and the washing and swabbing operation constituted a workover of the Well, there is still a genuine issue of material fact as to whether a reasonably prudent operator would have continued to operate the well in the manner in which it was being operated. See Cannon, 117 S.W.3d at 421 (explaining that to terminate a lease a lessor must show both (1) that the lease failed to yield profit over reasonable period of time and (2) that a reasonably prudent operator would not have continued operations for the purpose of profit, as opposed to mere speculation). Defendants point to a series of emails in which EnerQuest’s president, Greg Olson, wrote that “the well [was] not capable of producing that much” and that “the well’s potential profit from existing production probably isn’t worth the cost of the facilities installation and pipeline hook-up, but at least the hook up will hold the lease.” (Dkt. # 126 Ex. F at 2.) Defendants argue that Olson’s admissions are “dispositive” and that they demonstrate that “his only justification for spending so much on a well then capable of producing so little was the speculative value holding [the] lease might have or which working over the Well might produce.” (Dkt. # 126 at 13.) However, the Court is not convinced that these statements are dispositive of the issue: Olson made these statements while attempting to arrange a pipeline hookup and testified during his deposition that they were merely negotiation ploys, complaints that he thought might help him obtain a lower price. (Id. Ex. G at 4-10.) Whether Olson is credible is a question for a jury, not for this Court.

If the Well at issue had been located over a dry hole, there could be no doubt that a reasonably prudent operator would not have continued to attempt to produce oil and gas from it, and this prong of the test would favor Defendants. In reality, however, the Well was located over a large gas reserve, and EnerQuest did eventually achieve substantial production from it. EnerQuest’s expert testified that EnerQuest, based on the results of the June 2, 2010 production test, could reasonably have expected the Well to produce in paying quantities:

After the June 2, 2010 production test, given the well performance and pressure build-up during the production test, existing agreements with Regency covering other wells in the area, the low pressure gas pipeline infrastructure in close proximity to the [Well], and the low cost of producing gas wells using an intermittent flow regime, EnerQuest had a reasonable basis for the expectation of a profit in excess of operating and marketing expenses once the [Well] could be connected to sales and allowed to produce.

(Smith Aff. ¶¶ 7, 10.) Defendants’ experts disagree, of course. {See Payne Report at 10 (implying that the production test suggested the Well would not be capable of producing in paying quantities); Dkt. # 113 Ex. J (“Payne Aff.”) ¶¶ 11, 14 (same); Howell Aff. ¶¶ 8-10 (“I am not of the opinion ... that any operator who wished to make a profit off the Well as it was on August 4, 2010, would have believed it to be a reasonable investment.”).) But that is precisely why there is a genuine issue of material fact here: The Court cannot conclude with certainty that a reasonably prudent operator would or would not have continued to attempt to produce the Well after seeing the results of the June 2, 2010 production test. It is not at all clear, based on the conflicting evidence the Parties have presented, what a reasonably prudent operator would have done.

Because there are a number of genuine issues of material fact — namely, (1) whether the work that EnerQuest performed on the Well in July of 2011 constituted a “workover” such that any production achieved after that workover should not be considered for purposes of this inquiry; (2) whether, if washing and swabbing did not constitute a workover, two years is a “reasonable” period of time over which to recou