Current Market Lease Terms

I’m posting this in the Reeves County category instead of Leasing category since location plays a role in ability to get certain lease terms. Our family has a number of offers for a previously unleased relatively small tract in Block 56 that we’re negotiating through our oil and gas lawyer. We’re focused on terms at the moment. My questions:

  1. How successful are you at getting a shallow depth severance, and how short of a distance between point of production and severance?
  2. How small can you get a horizontal production unit? I know they have shrunk of recent.
  3. How short of a time period can you get between completions and next drilling obligation in a continuous development clause? The heating up of the market over the last few years has made my knowledge of best possible terms out of date.

Thank you for your expertise.

  1. ALWAYS include horizontal and vertical pugh clauses. Although field rules generally dominate (given certain phrasing often included in the pughs), you should have no push-back against reasonable pughs. Usually shallow rights are retained by the operator up to 100’ below the deepest producing formation (there are variations to this), and any deeper rights are released if there is a horizontal pugh clause.

  2. Smallest unit I generally see for a single horizontal well in the wolfcamp is 320 acres (1/2 of a section). This however depends on lateral length, among other things.

  3. 180 days is what I’ve seen most often, but unsure if the trend is changing or not. Keep in mind a single well can hold a good amount of acreage in HBP status, and then they can take their time drilling additional wells. In other words, the operator can be strategic with drilling schedules so as to ensure minimal acreage is released by drilling the minimum number of wells to hold the acreage under the lease, and then they can later on go back and fully develop the minerals once they’ve secured their acreage with production.

Thank you, BP1. I was hoping to hear horizontal units these days would be smaller than 320 acres for leases in areas of high demand.

I hear some leases differentiate sizes for oil wells compared to gas wells?

Down in Webb county exist some of the most sophisticated landowners around. 240 acre units around a 6,000’ EFS lateral is very common. This unitized acreage is in the dry gas window.