Dead lease?

A man at Sundance Oil told me he thought our top lease did expire in November 2011...but he couldn't be sure. How do I find out? And if it has expired, how do I deal with the two companies drilling there? There are 7+ producing wells. We have mineral interests only.

Mountrail County T 156N Range 93W Sections 14 & 15

Thanks for any advice

Ms. Downey, Just to make sure we are using the right terms, you are talking about a Top Lease and not a Lease Extension Option?

Over a number of years my mother signed three "leases" for her mineral rights on this land; one at a time. I'm honestly not sure what the difference is between a top lease and a bottom lease. Perhaps one is the first lease during a specific period and the second is a "top" lease...with secondary position to the first? In any case the last was a single lease that ran from '09 to Nov '11. I assumed it had lapsed, but when I was doing the ND probate this Summer I checked with the agent who said he thought it had lapsed, but wasn't sure. Now the new deeds have been filed and the atty has sent copies of them to the drilling company/ies (Hess and Statoil). I'm just trying to figure out if I should do something proactive about negotiating terms before they just send me a check on their terms. They've been actively drilling since almost exactly the "lapse" time in '11, and have 7-10 wells operating in/under the two sections. To complicate this a little, my mother died in August '11, and I had her mail forwarded but I suppose it's possible that if they mailed something it was not forwarded to me. My cousins do have a current lease and have a .1825 royalty factor. If our lease has expired how is the royalty factor determined for my brother and me? Do we have to sign a lease in order to receive royalties?


I have to agree with rw kennedy in that it sounds like you might be referring to a lease extension and not a top lease. A top lease is when a company leases minerals which are currently under a lease whereas the top lease goes into effect after the original lease expires. If the lease has been drilled, wouldn't the lease be held by production unless a pugh clause is involved?

Yes, I see that, but wouldn't we have to have some notice of a lease extension? And, how would I find out who holds the lease now, if Sundance doesn't know? Do I just wait for a check to arrive in a couple of months, now that the new deeds have been filed?

Thanks for all info...every bit informs me.... and by the way....what is a Pugh Clause....guess I should Google it, hmmm? Ok - I've Googled it, and understand the What is "unitized" land as opposed to "pooled" land? I know we are pooled, in two different "pools".


Looking at the GIS map, unless you had a pugh clause in your lease, you are held by production in your area of T156;R93W;Sections 14&15. Your leasing should be over as long as this production exists on your area. Again, if a pugh clause is in place, another zone might be in play.

Thanks, an informed opinion is very helpful.

Bridget, you need a copy of the lease to see if it contained an extension option. There may not have been an extension option or the operator may have mailed the extension payment on the last day of the lease to the last known address.

Operators were stretched thin in 2011 and frequently commenced "operations" in the last month of a lease, operations leading up to a producing well would extend the primary term of the lease. 60, 90, 180, days, even for 1 year are common grace periods, 180 days being the most common in my opinion, grace period means that if the operator commenced "operations", built a road, dug a pit, drilled a water well, anything that cost substantial money/investment, as long as the operator did not cease trying to obtain production for longer than the time allowed in the grace period, the lease would be extended indefinitely, possibly years.

At this distance I can not tell if you had a valid lease or not at time operations commenced. If there was not a valid lease at the time operations commenced, the operator would still need/want to lease you. I would say no thank you and that the operator could send me an AFE to participate but they would probably end up force pooling me. When I am force pooled, I receive 16% royalty from the very first barrel, the operator takes the other 84% to pay for the well cost and a risk penalty/operating expenses until the operator recovers 150% of the well cost at which point I would become a working interest and receive 100% less taxes and cost of production. If the well never pays out or recovers the risk penalty, I owe nothing out of pocket. NDCC 38-08-08 is interesting reading.

I suspect that the operator did commence operations on your lease or they would have contacted you by now in an attempt to get you to sign a lease. The bonus and any upward royalty adjustments would be paltry compared to the loss of profit from the acres. In most cases the bonus is less than 1% of what the operator hopes to make from 80+% of your oil. The operator would be worried that someone else might lease you and participate [the operator would make nothing off your oil] or that you would be non-consent and that they would have to force pool you and the operator would make very little money off your oil. The operator expects to make multiple times the well cost from your oil, they do not go around drilling wells to recover a 50% of actual cost of drilling and completing risk penalty, 300% or more is more like it. A friend contacted me about the operator taking out a loan for $140,000,000 on 2,560 acres. I told them that is just a development loan, that the oil is worth more than that, obviously or a bank would not have loaned them money against the as yet non-producing [her spacing at least are not producing yet] acres as collateral. More than $54,000 per acre.

I think it likely that your operator commenced drilling in time, that does not mean I would not check to make sure.

I did a little more research and if your leases primary term extended to November, all companies had spud wells by September. If there was a continuing operations clause at all, and I am sure there was, the primary term was extended by operations and your lease is still in effect as all wells were spud between 8-15-2011 and early October 2011, so it wouldn't even be close. Bridget, you need a copy of the lease, the landman must have been in error if your lease expired in Nov 2011 and he thought you were unleased because all the wells were "spud" commenced drilling before that time. As a consolation, all wells seem to be good ones with considerable production. When you finally get a check, it ought to be a nice one.

Bridget, you have 5 producing wells by my count, in sections 14-15. Only 3 of the wells, drilled by Hess, drilled from 16 into section 15 would be yours, unless you owned in sections 17-18 also. There are also 3 confidential wells spud that I believe will also belong to sections 17-18 because they have those numbers in their name.

Brigham/Statoil has drilled two wells from section 23 north into section 14.

5 wells that are good producers is not bad and who knows what the future will hold, my most conservative estimate is that you will one day have 10 wells per spacing although it may take 20 years before you have them all. Enjoy it.

Yes, there was a clause to extend the lease if they commenced operations. And, as I understand it we are "pooled" with sections 14,15,16,17 plus the well coming in from section 23. There are also 3 more I'm getting sleep and can't remember the term... in the status that they get to keep information secret until January '14. So, that all seems to mean that the lease was extended... and I gather I should expect a check in the next 60 days or so. Thank you so much for the analysis... it was very clear, and makes sense to me of what happened in the last couple of years.