Depth pugh clause

Humble took a lease in 1972, they are now XTO. There are 16 wells in the section and the production has all but dried up. There may be less than 50 barrels of production from the last 12 months and nothing has been disposed of or sold in the last 12 months. Noble has the rights to these wells above 6700’ to surface. The deep rights were reserved by XTO but Noble just released the leases from 1972. I take it since Noble released the leases XTO no longer has deep rights as there never was any production from below 6700 and the lease that held the section has been released? Please help me understand this. Thank you

Hi, Greg!

Limited to what you have written, it appears (Landmen use that word a lot) that the leases from 1972 were completely terminated by the Release from Noble.

It would not be unusual, however, for there to have been language in the Assignment of the 0’-6700’ rights from XTO to Noble regarding Reassignment of those rights (whether required or “First Right Optional”) to XTO prior to any Release by Noble.

You might want to obtain a copy of the Assignment from the County Clerk’s Office and review it. And to also see if there is anything of record like a second Release of Leases or a Release of Option / First Right or whatever from XTO related to the same leases.

If Noble released the leases without first addressing any requirements in the Assignment they received from XTO, then they may (probably) have left themselves in “a VERY actionable position” [Blatantly stolen from Jay and Silent Bob Strike Back].

And, I don’t know where your subject lands are located in Reeves County, but I would imagine that XTO would not be pleased with Noble filing a Release of any leases they (XTO) might be able to continue to hold the deep rights under.

Hope this helps -

Charles Emery Tooke III

You need to review the exact wording in the release filed by Noble. The release may have been limited to its interest and rights in the lease and specify the depths. Also review the assignment to Noble as it may have been limited to the shallow depths as long as production continued and had an automatic reversion back to the assignor (Humble / Exxon / XTO). Noble has not been drilling shallow wells and it may have acquired the shallow rights as part of its acquisition of Clayton Williams Energy. Best to get all of the documents from the deed records - lease and all assignments or purchase and sale agreements - related to your lease. You may need to consult an attorney about the possible termination of your lease due to the low production, although that can be an uphill battle.

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