I offered the following clause to be included in a lease:
DEPTH CLAUSE:
In the event this lease is extended by commercial production beyond its primary term, then on such date this lease shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the deepest producing perforation in the well or wells located on the leased premised, or land unitized therewith. If the lessee is in the process of drilling or completing a well at the end of the primary term of this lease, this clause shall become effective upon conclusion of such operations.
The lessee countered with this revised clause, and basically changing "producing perforation" to "penetrated formation":
DEPTH CLAUSE:
In the event this lease is extended by commercial production beyond its primary term, then on such date this lease shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the deepest penetrated formation in the well or wells located on the leased premised, or land unitized therewith. If the lessee is in the process of drilling or completing a well at the end of the primary term of this lease, this clause shall become effective upon conclusion of such operations.
I have read advice emphasizing the use of "producing perforation" as the way to word this clause. What is the implication of the lessee's revised wording?
Thanks for any input-Arthur
Arthur:
There is some very expert advice available and maybe someone will share the right words with us. I like to learn and understand how to word this clause as well as many others so the mineral owner can get a fair shake when the time for enforcement comes to pass. My only comment here is to makes sure you know what you are saying and get a very knowledgeable attorney to help you make the final wording. The "producing perforations" is scary to me since this does not specifically limit to a specific "vertical" depth which is a very important point to make.
Right off hand, I can't remember who made the post on another forum; but, they are having a problem getting a company to release everything 100 foot below the strata they are producing since their clause was written a little differently and the producing company says that they can and will hold all vertical depths down to and including the full length of the lateral. i.e., if the vertical producing depth is 10,000 foot and the lateral is 7500 foot, then the mineral owner would expect to get a release for everything below 10,100 feet. Not so says the producing company, they are saying that they will hold all depths down to 17,500 plus 100. This is new stuff since it just happened and hasn't been tested in court yet. Anyway, this is scary to me.
Hi Arthur -
I am sure that more knowledgable people will be responding to your inquiry, but these are my thoughts on the subject:
With the advent of Horizontal Drilling and Fraccing, the companies may "penetrate" one formation, but more than one formation is "perforated". Fraccing can spreadout up to something like 300 feet (the length of a Football field) in every given direction, penetrating several formations.
For example, out in the Permian Basin of West Texas, they have several formations that are closely situated to one another. Two that I can think of off-hand are the Wolfbone and the Sprayberry.
A company could potentially "penetrate" the higher formation, run horizontally through it, and then frac both. They now describe those wells as being "Wolfberry" Wells.
If the Depth Clause limited them to only the "penetrated" formation, they would instantly become guilty of Mineral Trespass.
Hope this helps -
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
Thanks Charles,
What if the wording used the plural, in the case of a horizontal well, "deepest producing perforations"? Would that open a bigger can of worms? Perhaps include "first initial deepest producing perforations"?
There must be a safe way to word the depth clause without granting the operator free movement to the center of the earth!
Charles Emery Tooke III said:
Hi Arthur -
I am sure that more knowledgable people will be responding to your inquiry, but these are my thoughts on the subject:
With the advent of Horizontal Drilling and Fraccing, the companies may "penetrate" one formation, but more than one formation is "perforated". Fraccing can spreadout up to something like 300 feet (the length of a Football field) in every given direction, penetrating several formations.
For example, out in the Permian Basin of West Texas, they have several formations that are closely situated to one another. Two that I can think of off-hand are the Wolfbone and the Sprayberry.
A company could potentially "penetrate" the higher formation, run horizontally through it, and then frac both. They now describe those wells as being "Wolfberry" Wells.
If the Depth Clause limited them to only the "penetrated" formation, they would instantly become guilty of Mineral Trespass.
Hope this helps -
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
Scary to me as well. Thanks Bigfoot.
Bigfoot said:
Arthur:
There is some very expert advice available and maybe someone will share the right words with us. I like to learn and understand how to word this clause as well as many others so the mineral owner can get a fair shake when the time for enforcement comes to pass. My only comment here is to makes sure you know what you are saying and get a very knowledgeable attorney to help you make the final wording. The "producing perforations" is scary to me since this does not specifically limit to a specific "vertical" depth which is a very important point to make.
Right off hand, I can't remember who made the post on another forum; but, they are having a problem getting a company to release everything 100 foot below the strata they are producing since their clause was written a little differently and the producing company says that they can and will hold all vertical depths down to and including the full length of the lateral. i.e., if the vertical producing depth is 10,000 foot and the lateral is 7500 foot, then the mineral owner would expect to get a release for everything below 10,100 feet. Not so says the producing company, they are saying that they will hold all depths down to 17,500 plus 100. This is new stuff since it just happened and hasn't been tested in court yet. Anyway, this is scary to me.
Hi, Arthur -
I don't think using the plural "perforations" rather than the singlular "perforation" would have any effect at all. What is intended appears to be quite clear.
Charles
If it is a vertical well, they could intentionally drill deeper for a deeper rat hole.
If it is a horizontal well, depth would appear to not be an issue.
Per Schlumberger, a rat hole is extra hole drilled at the end of the well (beyond the last zone of interest) to ensure that the zone of interest can be fully evaluated. The logging tool string may be as much as 120 ft [36.5 m] in length, so the rathole allows tools at the top of the logging string to reach and measure the deepest zone of interest. In addition, there is usually a small amount of extra hole drilled to allow for junk, hole fill-in and other conditions that may reduce the effective depth of the well prior to running logging tools.
Arthur:
Now that this is becoming an issue, I still believe I would spend a few bucks and let someone with superior expertise help with the wording before I signed another lease.
Check this forum discussion out. Go to April 23, at 2:33 pm. pdcall: Hopefully it will open. His clause is definitely different than yours and we've been on a steep learning curve since he initially signed his lease. Obviously there is room for discussion; but, the obvious intention was to limit to a vertical depth even though it wasn't specifically stated.
http://www.mineralrightsforum.com/forum/topics/fayette-county-tx-oil-gas?xg_source=activity&id=4401368%3ATopic%3A3525&page=474#comments
Arthur Wright said:
Scary to me as well. Thanks Bigfoot.
Bigfoot said:
Arthur:
There is some very expert advice available and maybe someone will share the right words with us. I like to learn and understand how to word this clause as well as many others so the mineral owner can get a fair shake when the time for enforcement comes to pass. My only comment here is to makes sure you know what you are saying and get a very knowledgeable attorney to help you make the final wording. The "producing perforations" is scary to me since this does not specifically limit to a specific "vertical" depth which is a very important point to make.
Right off hand, I can't remember who made the post on another forum; but, they are having a problem getting a company to release everything 100 foot below the strata they are producing since their clause was written a little differently and the producing company says that they can and will hold all vertical depths down to and including the full length of the lateral. i.e., if the vertical producing depth is 10,000 foot and the lateral is 7500 foot, then the mineral owner would expect to get a release for everything below 10,100 feet. Not so says the producing company, they are saying that they will hold all depths down to 17,500 plus 100. This is new stuff since it just happened and hasn't been tested in court yet. Anyway, this is scary to me.
"shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the deepest penetrated formation in the well or wells located on the leased premised, or land unitized therewith."
This is an unacceptable clause in my opinion. The first argument against it would be that if you penetrated 100 feet into the Wilcox formation (just to pick one out), your lease would be held to the base of the Wilcox -- which could be thousands and thousands of feet beneath the deepest depth drilled. The second argument against it would be that if you did not drill and produce, why do you want or need those depths? The answer is that you do not need them -- you just want them.
I had a client several years ago that had a depth severence clause that read essentially "...expire 100' below the base of the deepest penetrated formation..." Guess what the operator (Chesapeake) drilled 75' into the top of? The Haynesville Shale. So now, the landowner could not lease his Haynesville rights because they were HBP because he signed a bad lease form. I suppose that he learned the hard way. $5000 per acre x 450 acres was a tough learning experience for him.
To really put some teeth in your depth severance, let the deep rights continuously expire as the formations produce out and the operator re-completes further uphole and abandons depleted formations.
Best,
Buddy Cotten
Thanks Buddy,
Getting the deep rights to expire after the depletion of the formation is what I expected a depth clause to implement, but I see it can be interpreted very differently without the proper language.
Would it be wise to include a minimum monthly recovery clause to avoid an operator holding on to a well indefinitely as the formation becomes, essentially, depleted and produces very little?
Buddy Cotten said:
"shall terminate as to all rights one hundred feet and more below the stratigraphic equivalent of the deepest penetrated formation in the well or wells located on the leased premised, or land unitized therewith."
This is an unacceptable clause in my opinion. The first argument against it would be that if you penetrated 100 feet into the Wilcox formation (just to pick one out), your lease would be held to the base of the Wilcox -- which could be thousands and thousands of feet beneath the deepest depth drilled. The second argument against it would be that if you did not drill and produce, why do you want or need those depths? The answer is that you do not need them -- you just want them.
I had a client several years ago that had a depth severence clause that read essentially "...expire 100' below the base of the deepest penetrated formation..." Guess what the operator (Chesapeake) drilled 75' into the top of? The Haynesville Shale. So now, the landowner could not lease his Haynesville rights because they were HBP because he signed a bad lease form. I suppose that he learned the hard way. $5000 per acre x 450 acres was a tough learning experience for him.
To really put some teeth in your depth severance, let the deep rights continuously expire as the formations produce out and the operator re-completes further uphole and abandons depleted formations.
Best,
Buddy Cotten
Mineral Manager