McDowell v. PG & E Resources Co.
Court of Appeal of Louisiana
658 So. 2d 779 (La. Ct. App. 1995)
PG & E Resources Company (Resources) (defendant) leased oil and gas rights from Howard McDowell (plaintiff) and combined "wet gas" from one well with "dry gas" from another for sale to a pipeline buyer, United Gas Pipeline Company, which refused to accept only wet gas once the dry-gas well stopped producing. Resources invoked a shut-in royalty clause, repeatedly asked United to make an exception, attempted to rework the dry-gas well, and searched for alternative buyers, eventually contracting with Tex/Con and building a new pipeline to reach it, reopening the wet-gas well about a year after United stopped taking gas. McDowell sued to cancel the lease based on a 90-day cessation-of-production clause and an alleged breach of the implied covenant to market, without ever giving Resources notice of the alleged breach. The trial court cancelled the lease based on the implied-covenant theory, and Resources appealed.
Whether a plaintiff seeking to cancel an oil and gas lease for breach of an implied covenant must first place the lessee formally in default before seeking judicial intervention.