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The Koontz standard as originally stated by the Texas Supreme Court has lost its way. It has evolved into a two-prong test that wrongly focuses on past performance based on arbitrary and uncertain accounting calculations rather than future projections. As occurred in the 1980s, a price downturn provides motivation to reexamine provisions such as the two prong paying quantities standard in the habendum clause of the oil and gas lease. This article examines the habendum clause and the evolution of the paying quantities standard which will determine whether a lease continues in effect or terminates automatically. This article also seeks to show that courts have placed undue focus on the mathematical first prong of the paying quantities test. Due to the shortcomings of the mathematical prong, this article proposes that courts reformulate the paying quantities standard by removing the express mathematical prong of the test and by taking the best aspects of the test from both earlier and more recent decisions.

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One J: Oil and Gas, Natural Resources, and Energy Journal





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