Last week I posted about the duty of a lessee (operator) to protect against leasehold drainage. Today the topic is the duty of the lessee to develop the leasehold as a reasonably prudent operator.
A lessee breaches its implied duty to develop if it fails to further explore or drill additional wells from producing strata or horizons or from producing horizons that may, in reasonable probability, exist. The lessee has a duty to exercise reasonable diligence in developing the leasehold. The development of the leasehold must provide a reasonable expectation of profit not only to the lessor but to the lessee, as well.
This doesn’t necessarily mean that the operator must drill. Other activities on the lease may be enough to show that an operator has satisfied the duty to develop such as seismic surveys.
Next I will discuss the duty of an operator to market and sell the minerals from the leased premises.