Clifton v. Koontz
Supreme Court of Texas
325 S.W.2d 684 (Tex. 1959)
Lillie Clifton (plaintiff) leased oil and gas rights that were later acquired by Koontz (defendant); the lease could be canceled if production ceased after its primary term, unless reworking began within 60 days of that cessation. The well was profitable overall in 1955 and for the first half of 1956 despite some individually unprofitable months (because oil accumulated over several months before being sold in bulk), though it ran at a net loss from mid-1956 through September, when Koontz began reworking operations. Clifton sued to cancel the lease for cessation of production; the trial court found production in paying quantities hadn't ceased.
Whether a well can be deemed to be producing in paying quantities if it has sufficient production to yield a return in excess of operating costs and marketing costs, even though the undertaking considered as a whole may ultimately result in a loss.