In ND, would the following hypothetical be correct?
Assume ND spacing is 640 acres, the leased acres is 1120, would the Pugh Clause be irrelevant because the existing company had one rig on my property so that another company would not be able to drill because of the spacing restriction? (1120-640=480, not enough for another well)
Thank you in advance for your advice.
Joel
It is likely that each 640 acre unit would actually allow 5-8 horizontal wells. The horizontal Pugh Clause is your protection from getting all of your leased acreage locked into a “Held By Production” status from just one well. Very important to keep that in place in your contract addendum so that all of the 1120 acres does not get HBP’d only the acreage within the confines of the 640 acre unit.
Could be useful to also look at pursuing the inclusion of a vertical pugh (or depth clause) as well in order to release all depths below the deepest producing horizon drilled and to also pursue a continuous production clause so that the O&G is obligated to continue in-fill production in your units in order to maintain the lease-hold.
http://www.tlma.org/oilgasleasechecklist.pdf
http://www.tlma.org/jfhintsonlease1997.pdf
Also recommend that prior to signing any agreement that you definitely have the document looked over by a competent O&G attorney.
Best of luck.
Hey Joel,
Yes, very important to have an attorney who is actively working and competent specifically in Oil and Gas dealings and not just a general counsel. Otherwise, there are too many important items that will be overlooked otherwise.
All of the dealings for our own families minerals have all been in Texas, so I’m not versed on what current leasing conditions are for your area in ND.
I’m quite happy with our own attorney:
Eric Camp 817-878-0529 ecamp@whitakerchalk.com
Eric’s firm is based in Ft. Worth, but I do believe that Eric is also a member of the ND bar and is working with clients in the ND/Bakken so it might be worth giving him a shout. If so, tell him I say hello.
I also suggest that you check in with your local County Clerk’s office there in your county. You should be able to research either in their offices or on their public records website, what current leasing activity is happening in your area. Those leases will generally not tell you what bonus prices were agreed upon, but they often do list what clauses and protections were agreed upon as well as what royalty percentage was approved by the O&G co. Will also allow you to see if there are any other competing companies leasing in your area that might be worth checking out.
For our own lease in Texas, the royalty on the companies starting offer was 3/16 but we were able to challenge them on that and got it improved to 25% prior to signing. Significant improvement was negotiated on the bonus side of the deal as well, as opposed to the O&G’s original starting offer.
So do your research at the County Clerk’s office as that will give you some backup info and ammunition as to what deals are getting done in your specific region. First and foremost, try and get some improvement in the royalty percentage if possible and make sure to include your own contract addendum to protect your side. Although lease bonus amount is important, I feel that royalty % and proper addendum terms are the most important as those are the items that you and your family will be living with for the long-term 20-40+ years or more production of the acreage.
Joel said: Thanks David:
My first ND attorney did not include these clauses as O&G is not his specialty. I am running into problems trying to find one but they all seem to have a conflict of interest in representing the companies. If you know of anyone please let me know.
My land is in Golden Valley Co Township 141 North Range 104 West Section 26, Empire is offering (on the second try) $175 bonus 1/6 royalty for 5 yrs plus 3 year renewal. I have 89 net mineral acres 1120 total shared with other heirs.
There are two plugged and abandoned wells from the 1980s in Section 25.
On the surface what do you think about the financial terms?
Thanks again for your reply.
Joel