Chisolm Oil and Gas - activities in 18N 05W

Does anyone have knowledge to share specifically regarding Chisholm’s expected drilling in 23 18N 05W. Alta Mesa has plugged and abandoned (vertical) Smith #1 I assume in preparation of Chisolm’s drilling 2 Cow Hunt wells that will pass to the east and west of the Smith 1 ( case processing is inaccessible to me with the OCC website under construction so I may not be up to date) Interestingly, at least to me the Smith 1 well’s gas production had generated modest monthly royalty payments for almost 50 years. Since that well has been P&A, that revenue has stopped, however the anticipated new horizontals expected to be drilled by Chisholm do not seem to be in the near-term plans. If the wells are not drilled, what happens to the lease ownership on the acreage that was being held by production with 1/8 royalty for all these years. Chisholm has the section pooled but I am held to the original 1967 lease through production at 1/8 royalty, considerably below current rates for most new leases. I assume that nothing changes if Chisholm drills the wells before the order expires - otherwise, I am left with a non-producing well without release of he original lease. Can anyone clarify for me just what my position is or will be? Thanks Archie Smith

I’m sure that some with experience and more knowledge than I have will respond soon. I’m in a similar position in section 29, vertical wells with insignificant production but held by old leases. In my case Paloma has applied for a permit to drill deeper horizontal wells but, of course, the company holding the old vertical well is fighting that. Meanwhile a lot of time can pass which is not good for the royalty owners. My understanding is that a lease will expire 3 years after the well(s) is plugged but if more operations are continuing (more drilling, etc.) the lease will continue until those operations cease OR start producing which will then continue to hold the lease. Even if the wells end up being dry holes the lease will extend if the producer keeps drilling dry holes. And the wording in the original lease can make further complications. Seems that it also depends on decisions that the OCC can make. For us, the mineral owners all of this seems very unfair since old wells which are barely producing anything (I get about $50 or less in 3 months) can hold a lease which has been in existence for more than 60 years and keep other companies from coming in an putting down horizontal wells into other levels unless the OCC decides otherwise. I’ll be interested in seeing what other more knowledgeable persons replies will be on your subject.

The cases for 23 are 201708395 & 96, 201802349, 201802348. Staghorn may have a horizontal well that is holding that section even if the verticals are shut in. If that well was drilled under the 1/8th lease (probably), then all the rest of the horizontals are also held by that same lease if it is still active. Vadder 18 05 23-1H. If no well is active for a year (or whatever your lease says), then you might be able to get a new lease. However, the wording of your lease will be important. Activity as far as permitting has already begun on the new wells.

Thanks for including the applicable cause numbers. Until the OCC web site went offline (with no future reopening date given) I saw no reason for keeping all the hard copies of notices that preceded the orders – I have learned that lesson. I noted the "operations for drilling 1 cow hunt well will expire in Sept 2019 so if anything is drilled we are looking at mid 2020 for being online and producing.

John, the lease will expire by the terms stated in it. The primary term is for the drilling of the initial well. Many of them are for three years, but can be shorter or longer depending upon what the lease says. The secondary term is after the first well is productive. Again, depending upon what the lease says, it will remain in the secondary term as long as their is production (hopefully in economic quantities) or activities continue or the shut in time frame requirements are met. Most operators will not continue to drill dry holes as that is not smart business practice. A lot of us are held by those old 1/8th leases, but some royalty is better than no royalty. Until the laws are changed, those contracts will stand.