What are the implied covenants in oil and gas leases?
(1) Standard of performance – Lessee must act as a reasonably prudent operator (RPO)
(2) Implied covenant to Protect against drainage – must prove (i) substantial damages, (ii) lessee could drill a profitable well to offset drainage, and (iii) damages
(3) Implied covenant to Market – must market (i) within a reasonable time, and (ii) at the best price realizable (judged by the RPO standard)
(4) Implied covenant to Develop – note, there is not an implied covenant to explore. The standard for breach is whether Lessor can prove a reasonable expectation of profit from additional drilling, regardless of whether the proposed well is on an already proven tract or on new strata.