Legal Definitions - covenant to protect against drainage

A covenant to protect against drainage is a legal promise, often implied within an oil and gas lease, that obligates the lessee (the company holding the drilling rights) to take reasonable actions to prevent oil or natural gas from being drained from the lessor's (landowner's) property by wells located on neighboring land. This covenant ensures that the lessor receives the royalties they are entitled to from the hydrocarbons beneath their property, even if those hydrocarbons might be drawn away by nearby drilling operations. The lessee's duty typically arises when a prudent operator would drill an offset well or take other protective measures to prevent significant drainage and protect the lessor's interest.

• Example 1: Sarah owns a ranch and has leased her mineral rights to "EnergyCo." A neighboring property owner, who leased to "DrillFast Inc.," successfully drills a highly productive oil well very close to Sarah's property line. Sarah observes the significant production from DrillFast's well and suspects that oil is being drawn from beneath her land. She notifies EnergyCo, demanding they drill an offset well on her property to capture the oil before it migrates to DrillFast's well.

  Explanation: This scenario illustrates the covenant to protect against drainage because EnergyCo, as Sarah's lessee, has an implied duty to prevent the oil under Sarah's land from being drained by DrillFast's adjacent well. Sarah's demand for an offset well is a direct appeal to this covenant.

• Example 2: A large tract of land owned by the Miller family is leased to "Hydrocarbon Ventures" for oil and gas exploration. For several years, Hydrocarbon Ventures has not drilled any wells on the Miller's property. Recently, a new drilling technique allowed a company on an adjacent property to successfully complete a horizontal well that extends deep under the Miller's land, clearly draining natural gas. The Millers inform Hydrocarbon Ventures of the drainage and request that they either drill a protective well or compensate them for the lost gas.

  Explanation: This example demonstrates the covenant's application even when the lessee (Hydrocarbon Ventures) has not yet drilled on the leased property. The covenant still obligates them to protect the Miller family's mineral estate from drainage caused by the neighboring well, potentially requiring them to drill or pay damages for the lost royalties.

• Example 3: "PetroCorp" holds a lease on farmer John's land. A competitor drills a well on an adjacent parcel, and geological studies confirm that significant amounts of oil are being drained from under John's farm. PetroCorp, after evaluating the situation, decides not to drill an offset well, claiming that the potential profits from such a well would not justify the drilling costs. John believes this decision breaches the covenant to protect against drainage, as he is losing substantial royalties, and considers legal action.

  Explanation: Here, the covenant is at the heart of a potential dispute. John asserts that PetroCorp has breached its duty to protect his minerals from drainage, even if PetroCorp argues that drilling an offset well wouldn't be "prudent" from their financial perspective. This highlights the legal standard of a "prudent operator" often used to determine if the covenant has been fulfilled.