Client Alert: Oil and Gas Leases – Shutting in a Well

There has always been an ebb and flow to the economy as a whole, but in few industries are there such sharp fluctuations as in the oil and gas industry. Texas, in particular, has an economy strongly tied to the oil and gas sector, accounting for 41 percent of the nation’s crude oil production and 25 percent of its marketed natural gas production in 2019. When demand for oil and gas is high, the Texas oil and gas industry flourishes. Problems arise, however, when the market is faced with a large supply and dramatic drops in demand.

Under these circumstances, many lessees may begin to consider shutting in their wells, either because they have nowhere to store what they produce or to comply with production quotas. Before a well is shut in, however, it is important for lessees to consider the legal implications of shutting in a well. Below is a discussion of some considerations relevant to this decision.