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When is an Oil, Gas and Mineral Lease Considered Expired?

I have an Oil, Gas and Mineral Lease in Karnes County, TX which was executed on June 11, 2009 for three years with an option for an additional three years. I have 100% of the minerals. There has been no drilling on the property, in fact, there has been no communications with the Leasee since the signing of the lease and the bonus payment. My questions are: (1) if the Lessee does not provide me notice of his intentions, either verbal or written, to exercise his three year option on or before June 11, 2012, is the lease considered expired or is there a grace period? (2) if the Lessee intends to exercise, when am I to receive payment?

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Permalink Reply by Bryson Wallace on February 7, 2012 at 12:00pm

They have until the date to either pool you in a unit or pay you for the additional 3 years. How many acres do you have?

Permalink Reply by Mark A. Baird on February 7, 2012 at 12:04pm

25 acres

Bryson Wallace said:

They have until the date to either pool you in a unit or pay you for the additional 3 years. How many acres do you have?

Permalink Reply by Bryson Wallace on February 7, 2012 at 12:26pm

If you are in the oil window of Karnes they will either drill it or pay you for the additional 3 years. It all depends on the expiration of the properties around you. If they all signed leases similar to yours the company is probably going to extend your lease and sit on it for a few more years. That is the downside to getting such a long extension on an area that gets hot.

Permalink Reply by Mark A. Baird on February 7, 2012 at 12:36pm

Bryson:

Thank you for information. The property is 1 mile south of the Wilson County/Karnes County line on Hwy 123. Pretty much all of the land owners here in the M.I. Leal Survey signed leases within weeks of each other on the same terms. Assuming the Lessee has not pooled my land into a unit or contacted me on the third anniversary of the lease (6/11/12), would the lease then be considered expired or is there a grace period?

Thanks.

Permalink Reply by Bryson Wallace on February 7, 2012 at 2:28pm

It all depends on the language used in the original lease. Sometime there is a grace period and sometimes there is not. I was able to locate your land and there is no way they will not extend your lease. It sits in a prime area. Your payday will come.
 
Mark A. Baird said:

Bryson:

Thank you for information. The property is 1 mile south of the Wilson County/Karnes County line on Hwy 123. Pretty much all of the land owners here in the M.I. Leal Survey signed leases within weeks of each other on the same terms. Assuming the Lessee has not pooled my land into a unit or contacted me on the third anniversary of the lease (6/11/12), would the lease then be considered expired or is there a grace period?

Thanks.

Permalink Reply by Mark A. Baird on February 7, 2012 at 2:39pm

Bryson:

Thanks for the vote of confidence. I'll take a look a my lease. Thanks, again and have a good day.


 
Bryson Wallace said:

It all depends on the language used in the original lease. Sometime there is a grace period and sometimes there is not. I was able to locate your land and there is no way they will not extend your lease. It sits in a prime area. Your payday will come.
 
Mark A. Baird said:

Bryson:

Thank you for information. The property is 1 mile south of the Wilson County/Karnes County line on Hwy 123. Pretty much all of the land owners here in the M.I. Leal Survey signed leases within weeks of each other on the same terms. Assuming the Lessee has not pooled my land into a unit or contacted me on the third anniversary of the lease (6/11/12), would the lease then be considered expired or is there a grace period?

Thanks.

Permalink Reply by charles s mallory on February 7, 2012 at 7:14pm

Mark:

If you don't completely understand the lease wording, I would consult a professional for an interpretation.  Sometimes the wording in leases can be confusing, especially if your background isn't in this business.  I have several active leases and sometimes trying to decifer the wording is difficult.  Good luck.

Mark A. Baird said:

Bryson:

Thanks for the vote of confidence. I'll take a look a my lease. Thanks, again and have a good day.


 
Bryson Wallace said:

It all depends on the language used in the original lease. Sometime there is a grace period and sometimes there is not. I was able to locate your land and there is no way they will not extend your lease. It sits in a prime area. Your payday will come.
 
Mark A. Baird said:

Bryson:

Thank you for information. The property is 1 mile south of the Wilson County/Karnes County line on Hwy 123. Pretty much all of the land owners here in the M.I. Leal Survey signed leases within weeks of each other on the same terms. Assuming the Lessee has not pooled my land into a unit or contacted me on the third anniversary of the lease (6/11/12), would the lease then be considered expired or is there a grace period?

Thanks.

Permalink Reply by Cliff Williams on February 7, 2012 at 10:23pm

I agree with the info given before me and would like to add one thing.  Legally speaking - the default rule is that there is no grace period.  The courts have strictly construed the termination dates of leases, shut-in payments and delay rental payments. If they aren't there prior to expiration the lease expires.

Now, most leases no longer have delay rentals but there was a company man that was driving a delay rental check out to a mineral owner and the company man had a wreck and was out for some time recovering.  The company really wanted the lease but they did not get the delay rental there until after the expiration date.  The courts said that they should have left earlier and that even though there were extenuating circumstances with the wreck the company had no excuse for being late and the court decreed the lease expired.

If you have some special language the default can be circumvented and the company could have some "grace period" but that is highly unlikely.

Cliff Williams

Permalink Reply by Mark A. Baird on February 8, 2012 at 6:58am

Mr. Williams:

Very, very interesting. Thank you for the information.

Mark
 
Cliff Williams said:

I agree with the info given before me and would like to add one thing.  Legally speaking - the default rule is that there is no grace period.  The courts have strictly construed the termination dates of leases, shut-in payments and delay rental payments. If they aren't there prior to expiration the lease expires.

Now, most leases no longer have delay rentals but there was a company man that was driving a delay rental check out to a mineral owner and the company man had a wreck and was out for some time recovering.  The company really wanted the lease but they did not get the delay rental there until after the expiration date.  The courts said that they should have left earlier and that even though there were extenuating circumstances with the wreck the company had no excuse for being late and the court decreed the lease expired.

If you have some special language the default can be circumvented and the company could have some "grace period" but that is highly unlikely.

Cliff Williams

The Law Office of Cliff Williams

Permalink Reply by Linda K Henderson on February 12, 2012 at 10:11pm
Same situation in LaSalle County except well is drilled but no frac yet/3 yr lease will expire in Dec 2012. Do they have to complete well before end of lease
Permalink Reply by charles s mallory on February 13, 2012 at 5:54am

Linda:

I believe the wording in the original lease needs to be reviewed but most likely the operator has the neccessary action to hold the lease if all has been completed except the fracking of the well.

Linda K Henderson said:

Same situation in LaSalle County except well is drilled but no frac yet/3 yr lease will expire in Dec 2012. Do they have to complete well before end of lease
Permalink Reply by Cliff Williams on February 13, 2012 at 8:53am

Unless the "operations" definition on the lease has been modified from the original language then the courts interpret "operations" liberally to mean that the lease was held when the oil and gas company began their work to prepare for the drilling, i.e. building roads and a surface location.  I typically more clearly define what "operations" means on leases for my clients.  (This means that all leases which are also pooled with the drill-site tract are also held)

Ms. Henderson, this means they do not need to frac and begin flowing product to hold the lease.  The next question would be whether the shut-in clause will apply immediately.  I usually modify this clause in the lease to say the operator must begin paying shut-in royalty with 90 days if the well is not producing by the expiration date.

Cliff Williams

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