120 Day Production Deferral

Good Morning, I recently received two Production Deferral Notifications. The one from Chesapeake is asking for my signature (acknowledgement and agreement) to a one time 120 day deferral. The letter from EP Energy is merely a notification advising they are terminating production. Just wondering why the difference? I’d also appreciate everybody’s input on the documents. Sign, Don’t sign, Makes no difference if I sign or not… Thanks in advance.

EPEnergy_Communication_to_Eagle_Ford_Lessors.pdf (78.2 KB) CHKEnergy.pdf (468.6 KB)

I’m not a landman, but the Chesapeake letter is hoping you’ll agree to amend your lease to allow them to add the ability to defer production this one time, since deferring oil production due to force majure or low prices is not addressed in most leases. Gas needs a pipeline and plant to produce to so gas usually has a force majure clause (since plants usually go down for repairs at some point), but oil could always be hauled/stored if there’s a pipeline/processing interruption (historically, anyway).

It looks to me like EP is assuming this letter covers all bases, and it doesn’t really. If you have an oil well they’re shutting in due to COVID-19 pricing, or if oil force majure is not addressed in your lease, this letter means nothing to you. If you have gas wells, they’re simply letting you know they’re being forced to shut-in (although I don’t know why gas wells would be forced to shut in).

Based on case law I’ve recently heard addressed, it’s not 100% certain if COVID-19 storage and pricing issues counts legally as force majure or if it’s simply a voluntary shut-in and depends on how the lease is written and individual circumstances.

Also, wasn’t all of oil and gas considered essential in Texas? EP claiming the stay-at-home order to claim force majure seems a stretch.

Thanks for your reply. The wells produce both oil and gas. (I see that on the Texas RRC database, they are identified as oil wells). I spoke with a Landman at Cheaspeake. He said these letter were sent out to individuals who have leases which allow for only 60 days of no production. I guess they want an additional 60 days in case the price of oil doesn’t recover in that two month period. Anyways, hoping for higher oil and gas prices and an end to this cursed COVID-19. Have a great day.

That checks out to me then. Glad you were able to get Chesapeake on the phone to confirm. Most leases I see have 60 day cessation clauses unless they’re older. I’ve never personally seen a clause that lets oil wells be shut in for any force majure-type reason beyond that limit without consent of the leaseholders (either through payments or agreements). I think we’ve just never had a reason to!

How old are the wells they’re shutting in? I’m seeing some 2018/2019 drills by Chesapeake in La Salle county that might be larger producers still. If they’re of any significant volume you might be able to negotiate them to pay you a bonus to extend rather than just giving it up for free. Depends on how much you own and how much you feel like negotiating. Some of the mineral owners and landmen on here could probably give you a better feel for the going rate, if there is one. I’m not as well tapped into current rates as others.