If you are not familiar with the term fraclog or fracventory, go here to read a bit on it.
If I were representing a client in today’s environment, I would consider a clause that requires that the Operator drill and complete any well drilled in a manner as a reasonably prudent Operator would do under the same or similar circumstances.
What we have is a tremendous (estimated over 5500 wells) backlog of wells waiting to be completed. Why the wait? It is always money. Either the Operator does not have the money to complete his wells or he is evaluating the wells that he wants to complete first to maximize his investment.
How do you place your property in or close to the head of the line to be completed when market conditions are right? The only way that I can think of is a monthly penalty of some sort for each month the well is not completed after perhaps 3 months of the drilling rig being released. What would the monthly penalty be? Something akin to a shut-in royalty penalty. Currently, I am negotiating $50-75 per acre, pro-rated to a monthly basis for shut-in royalty payments. This penalty would apply to wells drilled within and without the primary term.
This clause is in conceptual form only and I am eager to hear from both mineral owners and industry professionals alike.
Best,