Lessee wants to change this from “depth drilled” in our family lawyer approved family lease to “common source of supply”. I’ve read some of what that change means, that it adds the entire depth of the formation, which could be a few thousand feet, and then another 100’ that might be into another source.
My question on this possibility (and maybe the term “Held by Production”)…is the lessee able to prevent another entity from drilling the formation or does it only limit our ability to lease to the second entity? If another well were drilled, I assume we would get paid for production under the original lease terms? What else do I need to know to fully understand what we might give up?
Thanks!
A:
DEPTH CLAUSE: It is further understood and agreed that all acreage not included in a unit and not producing or upon which drilling operations have not commenced, shall be released at the expiration of the primary term. This lease shall also expire at the expiration of the primary term as to all formations situated 100 feet below the stratigraphic equivalent of the deepest producing depth drilled in any well situated on the leased premises or on acreage pooled or unitized therewith.
B DEPTH CLAUSE: It is further understood and agreed that all acreage not included in a unit and not producing
or upon which drilling operations have not commenced, shall be released at the expiration of the primary term.
This lease shall also expire at the expiration of the primary term as to all formations situated 100 feet below the
stratigraphic equivalent of the deepest producing common source of supply in any well situated on the leased
premises or on acreage pooled or unitized therewith.
Is the Lessee able to prevent another entity from drilling the formation - No - if another operator or party that is not your Lessee wants drill, so long as the other party owns the right to drill also they have the right to do so. This pertains to correlative rights.
Limit your ability to lease to a second entity? Depends on what the first company drills. Caddo has numerous formations that stand to produce and at different depths. The operator may drill to the deepest producing formation initially to hold as many formations as possible for subsequent development of shallower formations. Or if they drill a shallow well, your deeper rights would be retained to be leased again. If they drill down to the deepest known producing formation and produce then you probably wont get a chance to lease again unless the production ceases.
If another well were drilled, I assume we would get paid for production under the original lease terms? Yes
What else do I need to know to fully understand what we might give up? I think the change in wording in this case is a minimal difference due to “producing” being included in both.
If the language was, “release at the total depth drilled” or “100’ below total depth drilled”, without inclusion of producing depth drilled, they could drill deeper but produce a shallow formation, and hold all the depths/formations drilled through (even if only producing shallow). If they drill a horizontal well it will be drilled to a specific target depth or common source of supply they are targeting and the want to be sure to encompass their needed depths to fully develop that producing formation.
There is also the chance they just want to use the same terminology of the regulatory authority of the Oklahoma Corporation Commission, which uses “common source of supply” to define the geologic interval or reservoir that is legally recognized for purposes of spacing, pooling, and protecting correlative rights among mineral owners. However in Language B, the extra 100’ would extend beyond the common source of supply and into the next deeper, which may be needed in case there is deviation during drilling?
I assume some others on this forum have been in this position and might chime-in to help.
The main intent I believe is to give the operator the freedom needed to get maximum production and unit development but also not holding more formations than are being actively developed, with regard to formations deeper.
Without additional information as to your location, depths currently producing, if any, and various other details, this is all generic information and provided herein as food for thought.
If someone see something incorrect, please call it out, I am here to learn too.
Hope this helps!
Thank you for this informative response. The section in question is 28-10N-9W. I don’t find any recent activity in that or any immediate adjacent sections.