In Stephens County when adding a "Depth Clause", what depth should we ask for? We read on the Forum that putting down 100 ft below the deepest depth drilled was a mistake. Any information would be greatly appreciated.
I'm not a lawyer but my understanding is that the issue is "depth drilled" vs. "producing" ... you don't want someone to drill a really deep hole, produce a shallow formation and then hold by production the deeper formations just because there is a hole down that deep, you want it produced.
This is the clause we use, addressing both horizontal and vertical releases:
It is also agreed that upon the expiration of the primary term of this lease, any portion of the leased premises lying outside of a spacing unit upon which operations have been commenced or production obtained, shall be released by Lessee and this lease shall terminate as to those portions. A spacing unit is defined as a unit established by order of the Corporation Commission of the State of Oklahoma or if no spacing unit has been established, a spacing unit shall consist of any geographical forty (40) acre tract for oil production, or one hundred sixty (160) acre tract for gas production. As to any spacing unit on which a well is producing, upon the expiration of the primary term of this oil and gas lease, this lease shall terminate as to all formations below the base of the deepest formation then producing. However, if upon the expiration of the primary term of this lease a well is drilling on a spacing unit which includes all or any part of the property covered by this lease then the Lessee shall have the right to drill said well to total depth and attempt a completion therein. After such completion then this lease shall terminate as to all formations below the base of the deepest formation then producing and underlying the spacing unit if the well is a producing well and if not, any portion of the leased premises in the spacing unit shall be released by Lessee and this lease shall terminate as to such portion.
Robert,
Think of the operator's geologic risk, your objective of receiving royalty from production, and how to combine the two. The operator will risk a tremendous amount of money and take geologic and completion risk in the process. You want the operator to do that for your benefit. You don't want an operator to drill a shallow will to a low risk zone and hold the deep formations which abound in Stephens CO for a song. Try this: require an operator to release all formations not tested and proven to be economic zones, as determined by an independent professional, back to you 2 years after the primary term. Demand a bonus that reflects your needs and that is fair to everyone. The diligent area operators will take it, the flippers won't. But there are pitfalls so think it through carefully.
Good advice here!