Oil & Gas Litigation Analysis

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Oil & Gas Litigation · Case Analysis
Joel Reese, Attorney

Home › Cases › McCully-Chapman Exploration, Inc. v. Ovintiv USA, Inc.
Lease Litigation

McCully-Chapman Exploration, Inc. v. Ovintiv USA, Inc.

U.S. District Court, Western District of Texas, Midland-Odessa Division MO:24-CV-00018-DC resolved

McCully-Chapman challenged Ovintiv's application of non-consent penalties under a 1982 AAPL form JOA to horizontal wells drilled from surface locations outside the Contract Area but producing through Section 46, arguing the JOA only governed operations "solely within" the Contract Area. The Western District of Texas rejected McCully's position, holding that the JOA's broad language—covering "any well on the Contract Area" and operations to "explore and develop" the parties' interests—applied to allocation wells that traverse and produce from the Contract Area even when drilled from neighboring sections.

Analysis

Western District of Texas Applies JOA Non-Consent Penalties to Multi-Section Horizontal Wells Traversing Contract Area

McCully-Chapman challenged Ovintiv's application of non-consent penalties under a 1982 AAPL form JOA to horizontal wells drilled from surface locations outside the Contract Area but producing through Section 46, arguing the JOA only governed operations "solely within" the Contract Area. The Western District of Texas rejected McCully's position, holding that the JOA's broad language—covering "any well on the Contract Area" and operations to "explore and develop" the parties' interests—applied to allocation wells that traverse and produce from the Contract Area even when drilled from neighboring sections.

Joel Reese  |  Jul 06, 2026
Joint Operating Agreement Permian Basin Horizontal Wells AAPL Form Non-Consent Penalties