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Basis of the Implied Covenants

William P. Pearce, Implied Covenants (1986)

The oil and gas lease, therefore, may be thought of as a grant burdened with certain contractual elements, which may be express or implied.5 If the lease really were, pure and simple, a grant of a fee simple determinable in the oil and gas in place, a doctrine first clearly articulated by the Texas courts and fairly widely followed,6 the lessee would retain ownership until the condition causing termination of the estate was triggered or until he abandoned the lease.7 In fact, however, his continued ownership of the leasehold is dependent on his continuing compliance with certain obligations, or covenants, which, although they appear nowhere in the lease, are nonetheless real and an ever-present source of concern to the lessee. It is these implied covenants fashioned by the courts that generate some of the unique flavor to the hybrid creature that we call an oil and gas lease.

It is well to keep in mind, however, that the existence of these implied covenants, which reflects the underlying presence of the contractual viewpoint in the analytical framework of the oil and gas lease, is not unique to this field of law. Williams and Meyers find the notion to be rooted in the contract law principle of cooperation:

“It is clear, however, that the implication of duties in an oil and gas lease is not an isolated phenomen peculiar to oil and gas law. On the contrary, th