Unconventional drilling changed the economics of oil and gas development. It also changed the leases. Where once a simple habendum clause and a shut-in royalty provision could govern a vertical well for decades, horizontal drilling introduced a new vocabulary, and with it, new disputes. The Eighth Court of Appeals’ December 2025 decision in MRC Permian Co. v. Point Energy Partners Permian LLC tackles one of these disputes head-on: how do you measure the lateral length of a horizontal wellbore?
The Dispute
MRC leased roughly 4,000 acres in Loving County under four identical leases. The leases required continuous drilling after the three-year primary term: spud a new well within 180 days of the prior well or lose everything outside designated production units. MRC drilled five horizontal wells during the primary term, missed the deadline to spud a sixth, and claimed force majeure. The Texas Supreme Court rejected that defense in 2023 and held the lease terminated in May 2017 as to all acreage outside production units.
That left the retained-acreage question. The lease allowed MRC to designate one production unit per well, sized according to a seemingly straightforward formula: up to 160 acres (plus 10% tolerance) if less than 5,000 feet of the wellbore extended horizontally in the producing formation, and up to 320 acres (plus 10% tolerance) if more than 5,000 feet did. MRC claimed the larger units. Point Energy said the wellbores fell short of the 5,000-foot threshold.
How the Court Measured the Lateral
Point Energy advanced a two-part measurement method. First, it argued the court should only count the “producing” segments of the wellbore—the intervals between perforations, or “take points,” where oil was actually being extracted. Second, it argued the wellbore should only be measured where it was “reasonably horizontal,” meaning inclined at roughly 75 to 85 degrees from vertical. Under this approach, the wellbores came in under 5,000 feet.
MRC countered with a simpler method: measure from the point where the wellbore first enters the producing formation—after it has kicked off from vertical—to the terminus. Under this approach, both the Totum #211H and Jackson Trust #121H wells cleared the 5,000-foot threshold.
The Eighth Court sided with MRC on both fronts.
On the “producing segments” argument, the court found the lease language dispositive. The clause required that “the wellbore extends horizontally in the producing formation.” It said nothing about the wellbore producing at every point along its length. The court drew a clean distinction: “producing formation” is a geological term—it describes the rock stratum from which hydrocarbons are obtained, not the specific intervals where perforations happen to be placed. The lease described where the wellbore is, not what the wellbore is doing.
On the “horizontal angle” argument, the court refused to graft a numerical angle requirement onto lease language that contained none. Point Energy wanted “horizontally” to mean roughly 90 degrees from vertical. The court acknowledged that horizontal wellbores are never perfectly horizontal—they curve, they navigate subsurface geology, they follow the formation. Imposing an angle threshold would ignore how horizontal drilling actually works.
The court offered a memorable analogy. Measuring the distance a car travels “east” on Interstate 10 means the distance along the highway as measured by mile markers—not the straight-line distance due east from start to finish, and not the distance after subtracting stretches where the highway veers north around San Antonio. Wellbores, like highways, navigate terrain. The lease measured the journey, not the bearing.
The result: measurement begins at the point where the wellbore enters the producing formation after deviating from vertical, regardless of angle, and extends to the terminus. MRC retained two 352-acre production units—704 acres total.
Two Ancillary Holdings Worth Noting
The court also addressed MRC’s failure to file production-unit designations within the 90-day window required by the lease. Point Energy argued this failure was a special limitation that capped MRC’s units at 160 acres. The court disagreed. Because the lease contained no language stating it would “automatically terminate” upon failure to designate, the filing requirement was a covenant—a breach of which sounds in damages, not forfeiture. This holding is consistent with the plethora of Texas jurisprudence disfavoring forfeiture and requiring special limitations on title to be stated clearly, precisely, and unequivocally.
On quasi-estoppel, the court held that MRC’s continued payment of royalties—roughly $900,000—did not estop Point Energy from claiming the lease terminated. MRC paid with full knowledge of the dispute. The lessors accepted with explicit reservation-of-rights letters. No unconscionability - no estoppel.
The Limits of This Holding—and Why Lease Language Is Everything
The court’s analysis turned on the specific language of this lease. The clause measured how far the “wellbore extends horizontally in the producing formation.” That phrase anchored the court’s reasoning—the formation is a geological stratum, and the wellbore either extends through it or it does not. For leases that contain similar language, the method the court used to measure the lateral is instructive. This methodology could also be instructive in the absence of a stratum limitation, but it would of course depend on the lease and the facts of the case.
Many horizontal wells traverse multiple formations on their path from heel to toe—sometimes intentionally, to reach a target zone, and sometimes because subsurface geology does not cooperate with the drill plan. A lease that ties horizontal measurement to a specific formation will likely produce a different result than one that is silent. For example, in a depth severed lease, should portions of the lateral that exit the stratum be measured? The MRC court did not address many of the potential ways a lease’s language could inform a horizontal measurement, but unconventional drilling makes these kinds of questions ripe for future litigation.
Practical Takeaways for Drafting
The lesson from MRC Permian is that imprecise language concerning horizontal length requirements may result in unintended results. However, the case reinforces the principle that conditions need to be extremely clear; otherwise, a court will hold they are covenants. Thus, if a landowner desires a horizontal to be drilled and/or measured in a specific way, precise language is required. If a landowner wants the horizontal requirement to be more than a covenant, explicit conditional and/or forfeiture language is required.
A few drafting principles can reduce ambiguity.
For operators and their counsel: Define the lateral length as measured depth from the heel to the toe—or, better yet, tie the measurement to the W-2 or completion report filed with the Railroad Commission. Commission records are public, verifiable, and remove subjectivity from the equation. Avoid language that invites disputes about angles, producing intervals, or formation boundaries. The simpler the measuring stick, the fewer arguments about the result.
For landowners and their counsel: Consider specifying that only the perforated or completed interval counts toward the lateral-length threshold. If the goal is to tie larger acreage to greater productive capacity—and for most lessors, it is—then the lease should say so explicitly. Require that the measurement reflect the spacing between the first and last perforation clusters or limit the measurement to perforations within a specified formation. Language like “the completed lateral length as measured between the first and last perforation stages” removes the ambiguity that MRC Permian exploited.
Disputes concerning the measurement of horizontal wells are not going away. Leases and JOAs are increasingly requiring operators to drill horizontal wells with minimum lateral requirements. As the wells get longer and the laterals become more complex, courts will continue to construe whatever language the parties give them. MRC Permian is a reminder that the time to resolve ambiguity is at the drafting table—not in the courtroom.