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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 Mark A. Baird on February 13, 2012 at 9:23am

Bryson, Charles, Cliff and Linda:

Very good discussion. Since the beginning of this discussion, I have learned that EOG, the Lessee, had received a horizontal well drilling permit from the TRC on 12/10/11 on an indicidual's land in my Survey, M. I. Leal. The drill site is about 2 miles from my property. According to a neighbor, a rig has been on that site and is ,reportedly, in the process of being moved out. It appears that there have been quite amunber of drilling permits granted during December in the area and several are within 2 miles of my land. My question is: if my land is part of the pooling of land affected by drilling am I to receive some kind of notice either in advance or after the fact? There are some repairs I would like to make on my land such as a new fence and now I not so certain if those funds will be coming from the next 3 years lease renewal or out of my own pocket if drilling begins prior to 6/11/12.

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Permalink Reply by Cliff Williams on February 13, 2012 at 9:27am

Usually the only notice for pooling occurs in the county courthouse with a filing of the unit declaration. The RRC also gets notice but they usually have a delay in getting information posted. You could note the surrounding wells (the one's you think are most likely to include your property) and then go to the courthouse and look up all the filings from EOG which are Unit Designations (or some derivative thereof) and see if any of them include your leasehold information in the pool.

Anybody have a quicker, easier way for Mr. Baird to accomplish this?

Thanks,

Cliff Williams

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Permalink Reply by r w kennedy on February 13, 2012 at 11:18am

I will probably never lease again, but if I did I would want a clause that nothing less than production would save my lease for the operator, after all they had years to drill and complete a well. If the operator thinks they need more time they should have tried a longer lease. The lease bonus on a paid up lease is delay paments paid in advance. In my opinion, no production, no payments, should = no lease. I think it would be a perversion of the shut in clause to apply it to a well that was never completed and produced. The only reason I would lease is to actually produce my minerals. It would never be my intent to lease so the operator could drill a well and lock in a low price holding my mineral acres stockpiled with a non-producing well. I would recommend that you bargain to get more out of shut in payments, such as they be quarterly and $50 per acre rather than the usual $1 per net acre per year. Don't allow the operator to stockpile your acres for virtually nothing.