Do wells stop producing?

Oil and Gas Leasing Help
1

I have a situation where an oil and gas lease is listed on my preliminary title report in 1964 and then never listed again. Could the well have been shut down, dried up, stopped producing for any reason? Or does that never happen?

I have spoken with the oil company and it is in fact still producing, but the person collecting the royalties (not retained) insists that I should have known in 1988 that it was producing. I’m looking for a reason to say that I reasonably assumed, 24 years later when I bought the property, that there was no more oil or the well stopped producing.

It may not be true, but I want to know if a well ever stops producing.

Thanks, Pat

2

Hi Pat -

If the well you are describing began producing in 1964, which would be 50 years ago. That would be quite a great little well.

But in answer to your question, all wells eventually stop producing and are then Plugged and Abandoned (P&A). Some are temporarily Shut-In for different reasons (Waiting on Pipeline, Waiting on Market, etc), but this does not appear to be the case.

It is my understanding that in most cases preliminary title reports do not cover mineral title. That type of research is far too expensive for your average real estate transaction. Surprised they even included the 1964 Lease.

If you want, send me the location of your property and the name of the company and well and I will see what I can dig up for you.

Hope this helps -

Charles Emery Tooke III Certified Professional Landman Fort Worth, Texas

3

Charles, thank you so much for that broad information. That was what I was looking for. A term like P&A or shut-in. The developer of my condominium project has been illegally collecting the oil royalties (not a huge amount by the way) for 32 years. He did not retain them on the deeds…a mistake I think.

But some of the owners of the building (me first) are suing him for conversion to get back royalties that he wrongfully collected.

But he’s a hot shot Beverly Hills lawyer and his defense against my lawsuit is that I “was on notice” that there was an oil and gas lease and it was my fault that I didn’t pursue it when I bought the property. I think it’s a very weak defense, but I want to have some reason that I didn’t believe that in 1988, a 1964 oil lease would still even exist. The well could have run dry.

And yes, you’re right. Title companies, if they mention it at all, state that there is “no assurance as to who the owner of this lease is.”

Thank you, Charles!

Pat

Charles Emery Tooke III said:

Hi Pat -

If the well you are describing began producing in 1964, which would be 50 years ago. That would be quite a great little well.

But in answer to your question, all wells eventually stop producing and are then Plugged and Abandoned (P&A). Some are temporarily Shut-In for different reasons (Waiting on Pipeline, Waiting on Market, etc), but this does not appear to be the case.

It is my understanding that in most cases preliminary title reports do not cover mineral title. That type of research is far too expensive for your average real estate transaction. Surprised they even included the 1964 Lease.

If you want, send me the location of your property and the name of the company and well and I will see what I can dig up for you.

Hope this helps -

Charles Emery Tooke III Certified Professional Landman Fort Worth, Texas

4

Pat -

As much as it might sting, I’ll have to admit that he does appear to have a point. Caveat Emptor is more than likely just as effective a concept in California as it is here in Texas.

Although typically maintained by the State rather than the County, Oil and Gas Drilling and Production Records are considered Public Record. I am not familiar with California Law, but would imagine that he would not have been required to disclose anything except what might not be available for public review.

Have you reviewed your original insurance and closing papers from when you acquired the property? If the Title Company didn’t disclaim any liabilities regarding mineral ownership, you may have a shot at recovering any losses incurred from them.

You might also want to quietly review your own insurance and closing papers and see if you might be in an actionable position by your Condo Owners.

There are paperwork steps that you have to take to make the company Operating the well aware of any changes in ownership. Have you been in touch with them?

If the Operating Company disburses the royalty payments, you need to get in touch with their Royalty Division Order Department. If they don’t disburse the Royalties, they will tell you who does (frequently the Purchaser(s) of the product(s) rather than the Operating Company) and you will need to get in touch with them.

It takes a while, but once you get in touch with them they will immediately suspend any further payments to the Attorney while you get the paperwork straightened out. The royalties would be placed “In Suspense” (Your Industry Word for the Day).

If you know the name of the Operating Company and Well, send that to me and I’ll find out who you need to call.

Charles

5

Charles, I will give you more details than you will ever want :slight_smile: And thank you for such a comprehensive answer. Yes, I think that Caveat Emptor is what he will go for… OR a statute of limitation for damages that would pay me 2 years rather than the 24 I am asking for.

An oil company, Venoco, is the one who contacted US - all the homeowners. And said that they had discovered through a random search of LA County Records that we were the owners and therefore entitled to oil royalties. We filed a chain of title and subsequently began receiving royalties.

It turns out they (Venoco) had been sending checks to Gregory Terrace Inc (the developer) and they had been returned. So they started looking for the recorded title holder…and got us. They also told us about PXP who was paying royalties for the same well.

We contacted PXP. They confirmed that Gregory Terrace had never retained the oil rights and never contacted the oil company with information on a new owner as required by their oil lease. Payments stopped (after 32 years) to Gregory Terrace Inc and went to us.

I sued for conversion in Small Claims to get $10,000 of the $24,000 (with 10% interest) that Mr. Boren, the president of GTI, had taken and I sued GTI, a now dissolved corporation. And won easily. The judge almost laughed Mr. Boren out of court…but to be fair, he came with zero defense, claiming it was 30 years ago and how was he supposed to know where the money went. But then he appealed.

In the meantime, I was worried I had no proof that Mr. Boren was receiving the money. I subpoenaed 9 years of checks from PXP. They were made out to Gregory Terrace Inc, c/o Jeff Boren. 101 checks. Bingo.

In small claims court here, on appeal, you can bring a lawyer in. But it is still an informal hearing. Mr. Boren is a big lawyer and his son is a big lawyer and the son is representing him. And now they will get serious. He has a great deal to lose. 17 other people will come after him…some possibly in Superior Court.

Every attorney I talked to said he had no right to take the money because he did not retain the oil rights. They have said it is clear conversion. Most have seen my preliminary title report. It does state "An oil and gas lease for the term therein provided with certain covenants, conditions, and provisions, together with easements, if any as set forth therein. Dated May 12, 1964. Then “no assurance is made to the present ownership of the leasehold created by said lease, nor to other matters affecting the rights or interest of the lessor or lessee in said lease.”

Perhaps I need to look at “The term therein provided”.

My trial de novo is THURSDAY! I have spent 2 years researching the validity of this claim, but I might have to do a little more now :slight_smile:

It is hard to believe that over 32 years, not one potential owner or one real estate agent would not have seen in the title search that there was an oil and gas lease.

But let me say, it is NEVER MENTIONED after the owner of 1964. It is not mentioned in the listing of Gregory Terrace Inc in 1980, nor in the 3 people who bought my unit subsequent to that. It is like it disappeared. So I am arguing that I assumed the person who sold to Gregory Terrace retained the oil rights (but I now know that would have been on Schedule A of my title report) or that the well dried up or was not in use after 1964.

I am just now seeing that that might be a weak argument.

So maybe Mr. Boren stole the money fair and square.

Your thoughts?

Pat

Charles Emery Tooke III said:

Pat -

As much as it might sting, I’ll have to admit that he does appear to have a point. Caveat Emptor is more than likely just as effective a concept in California as it is here in Texas.

Although typically maintained by the State rather than the County, Oil and Gas Drilling and Production Records are considered Public Record. I am not familiar with California Law, but would imagine that he would not have been required to disclose anything except what might not be available for public review.

Have you reviewed your original insurance and closing papers from when you acquired the property? If the Title Company didn’t disclaim any liabilities regarding mineral ownership, you may have a shot at recovering any losses incurred from them.

You might also want to quietly review your own insurance and closing papers and see if you might be in an actionable position by your Condo Owners.

There are paperwork steps that you have to take to make the company Operating the well aware of any changes in ownership. Have you been in touch with them?

If the Operating Company disburses the royalty payments, you need to get in touch with their Royalty Division Order Department. If they don’t disburse the Royalties, they will tell you who does (frequently the Purchaser(s) of the product(s) rather than the Operating Company) and you will need to get in touch with them.

It takes a while, but once you get in touch with them they will immediately suspend any further payments to the Attorney while you get the paperwork straightened out. The royalties would be placed “In Suspense” (Your Industry Word for the Day).

If you know the name of the Operating Company and Well, send that to me and I’ll find out who you need to call.

Charles

6

Pat -

Wow! That was a lot. You’ve been a busy Girl!

I would agree that it is clearly Conversion. And by what I am certain they consider to be an upstanding, experienced and knowledgeable member of the Bar…

Mr. Boren should have contacted you and sent you the very next royalty check he received. Besides, he was the more knowledgeable one, you were the Innocent Party. The Courts always side with the Innocent Party.

I would imagine that the Borens are going to be very open to the idea of a quick, quiet out of court settlement of all of these issues and possible additional claims before they end up in front of a California Bar Association Review Committee.

Being found guilty of Conversion of other peoples’ royalties for over 32 years would cost at least the elder Mr. Boren his Law License, career and personal reputation. It’d be in all the newspapers, all over the internet and talked about all over town.

Mr. Boren’s having his son represent him is both selfish and foolish in my opinion. There’s no objectivity in the dynamics of their relationship and that’s really restricting for the son. For his part, he should have never taken any case representing his father. He’s more than likely going to regret having done so with so much evidence piled up against his father.

I wonder if you could sue for “treble damages”?

“…the term therein provided” appears to reference the Primary Term of the Lease. In 1964, that might have been 10 years from the effective date of the Lease, but it would have included a provision to the effect of “or for so long thereafter as production continues”, thus your 50 year lease continues to produce and be Held By Production.

The part about the Lease not being in the title reports subsequent to the 1964 one is an important one. Make sure that the reports prepared when you sold the Condos very clearly contained language to the effect that no minerals were researched or your backside might be wide open. Of course, if that verbiage was left out and action was initiated against you, you would probably have recourse against your own Title and insurance companies.

Someone more oriented or knowledgeable of the oil and gas industry might have picked up on the fact that a Lease had been signed and checked it out, especially given the fact that in the 1964 papers they went to such lengths to describe how no further research was done on it. But that would have fallen to you or your successors in title.

Either way, that does not forgive conversion of over $24,000…

One other thing to note: It’s really surprising to me that a company would contact you after all these years and help you straighten out your ownership. They are typically too busy moving forward, which is why you have to prove any changes in ownership in producing properties to them, not vice versa.

I’ve been wrestling records for oil and gas companies for 37 years and the only reason I can think of as to why they suddenly showed up is that they have plans for future development activities for your lands. Probably additional drilling.

Wouldn’t that be Cool Beans!

Can you send me a copy of the 1964 Lease?

Charles

7

Charles, you are the best! You totally get it. And yes, I am aware (and he must be as well) that I will haul him before the Bar Association as well as the Department of Real Estate where he is a licensee. He could be in deep trouble. And he knows it.

He is incredibly arrogant. Even after we started receiving royalties and he ceased receiving them, his letters to us (the condo owners) kept insisting that Gregory Terrace Inc “is and always has been entitled to the royalties.” Seriously? So much for forwarding us the royalty payment. He took several hundred thousand dollars over 32 years, which at 10% is over a million dollars.

And yes, it is a 10-year lease that appears to sort of be on auto-renewal, so it is of course still active even now, 50 years later.

If you send me your email I will send you a scanned copy of the lease or at least the first few pages that talk about the term limit - one for 21 years and one for 10 years. But to be honest, it is 9 pages long of the tiniest print I have ever seen and will probably not scan in a way that you will be able to read it.

I want to ask you about this paragraph that you wrote:

“The part about the Lease not being in the title reports subsequent to the 1964 one is an important one. [YES! That is my argument - see below]. Make sure that the reports prepared when you sold the Condos very clearly contained language to the effect that no minerals were researched or your backside might be wide open.”

What did you mean by “when you sold” - I haven’t sold. Did you mean “when I bought”? Or “when he sold..”

By the way, it actually says in my Deed of Trust that the Trustee (the bank) would get “all right, title, …all mineral, oil and gas rights…and all royalties and profits therein…” That might NOT be good for me because it would further put me on notice that there is an oil and gas lease. Or are they just stating that just in case there is one?

But the 1964 issue is my argument - that there is absolutely NO mention of a lease after 1964…including it being in place in 1980 when GTI bought the property. So I want to tell the judge I REASONABLY thought the lease was inactive or the well was dry since it disappeared off the title report after 1964.

The bottom line is that they messed up and are trying to weasel out. Mr. Boren even said in the first trial, under his breath, when the judge was pushing him, “Well, your honor, we thought we had the oil rights.”

They did make me an offer: $500. Based on the SOL on conversion, as they see it. I have arguments to toll the SOL that I think will fly. Delayed discovery for one. But I feel that the judge will see the egregious nature of his actions and justice will be done. I’m hoping what you say is true about the judge - especially in small claims court - and he will see my innocence. Yes, Mr. Boren is the knowledgeable one here - he knew the rules of reserving oil rights and he ignored them. Blatantly. And even when the truth was in his face - the oil companies paying ME - he continued denial. And accused me of harassment and threatened me with a lawsuit for malicious prosecution. Believe me, the judge will hear all of this.

I didn’t take him to Superior Court (for the full amount) because, as one of my consulting lawyers said, he will tie you up with discovery and demurrer, etc. It will cost you more in lawyer fees than you will walk away with. He owes one owner over $65,000. That guy will take him to Superior Court. But probably not if I lose. I’m the guinea pig to see if we can prevail.

But this week he is being besieged with 5 or 6 letters of demand and at least 2 more summons for small claims. I have rallied the troops. But the caveat emptor is a concern.

That does not excuse that he took oil royalties that he was not entitled to. Because bottom line, he did not retain them.

Whew. TMI, I’m sure.

Pat

8

Charles,

Just thought I would bring you up to date on my conversion case. It has gotten much worse. I certainly poked the bear.

I was to go to court March 5, hopefully to get a final decision. On the evening of March 4, Mr. Boren got a process server into my condo building and he served everyone who answered their door with a 65-page declaratory relief lawsuit. Seventeen people. Boren had been getting all these letters of demand and two people had filed suit in small claims and he had to stop the bleeding. So that lawsuit gave people 20 days to answer his defensive claim or give up their right to sue. And it would cost them $485 each (husband and wife each!) to answer his lawsuit. Outrageous.

The next day, March 5, I went to court with my lawyer (not terribly strong, but an owner in the building who will sue Boren as well) and Boren demanded a “sitting judge” to hear the case. There was not one available so we once again went home with no answers. Next court date April 24. Last Friday.

In the meantime, Andy (my lawyer) had a meeting with all the owners about the 65-page lawsuit (Boren had ALL the copies of all the oil leases in 1964 and 1965 in the lawsuit). Most simply dropped out and gave up their right to sue. Andy filed a cross complaint on behalf of himself and four other owners. Two other owners are answering on their own.

I was not named in the declaratory relief suit, so I thought I was still good to go with my small claims suit since it had a judgment and was in the appeal phase. Several days later, Boren tried to subpoena me for a deposition and discovery but it was not done properly, so Andy sent them a letter saying we were not honoring it.

Our new date of April 24 came up on Friday. I am pumped (for the fourth time) and ready to get this over with. Boren had filed a brief with the court (not really allowed in small claims, but…) so we had to file a brief… which was very well done, I thought.

But we get to court and the judge, a criminal judge (experience in gang convictions), only on the bench for less than a year, says he has read everything and he sees (from Mr. Boren I’m sure) that there is a related case in Superior Court… Boren’s declaratory relief and Andy’s cross-complaint and he insists on my joining that lawsuit because otherwise we are wasting the court’s time on the same case! I was devastated! My day in court gone. His opportunity to appeal if I win in Superior Court available (I think).

Andy spoke. I spoke… way too emotional, I’m afraid. But the judge wouldn’t hear it. He was awful. Yelling at Andy. Done deal. Go away.

I’m going to try to get it back in small claims, but I don’t have much hope. They will depose me on May 27.

I am sort of looking for a really good oil and gas attorney in Los Angeles, but I will end up paying lots of money. Small claims was manageable, but I’m already out $5,000. Do you know of anyone in Los Angeles?

Thanks for listening and totally understanding this whole situation, Charles.

By the way, in the big lawsuit he delivered to the owners, he ADMITTED that they had been told by the two oil companies in late 2011 that they were not entitled to the royalties. In 2013 he is stating in a letter to me that they “are and always have been entitled to the royalties…!”

I may go to the Bar Association NOW!

Pat

Charles Emery Tooke III said:

Pat -

Wow! That was a lot. You’ve been a busy Girl!

I would agree that it is clearly Conversion. And by what I am certain they consider to be an upstanding, experienced and knowledgeable member of the Bar…

Mr. Boren should have contacted you and sent you the very next royalty check he received. Besides, he was the more knowledgeable one, you were the Innocent Party. The Courts always side with the Innocent Party.

I would imagine that the Borens are going to be very open to the idea of a quick, quiet out of court settlement of all of these issues and possible additional claims before they end up in front of a California Bar Association Review Committee.

Being found guilty of Conversion of other peoples’ royalties for over 32 years would cost at least the elder Mr. Boren his Law License, career and personal reputation. It’d be in all the newspapers, all over the internet and talked about all over town.

Mr. Boren’s having his son represent him is both selfish and foolish in my opinion. There’s no objectivity in the dynamics of their relationship and that’s really restricting for the son. For his part, he should have never taken any case representing his father. He’s more than likely going to regret having done so with so much evidence piled up against his father.

I wonder if you could sue for “treble damages”?

“…the term therein provided” appears to reference the Primary Term of the Lease. In 1964, that might have been 10 years from the effective date of the Lease, but it would have included a provision to the effect of “or for so long thereafter as production continues,” thus your 50-year lease continues to produce and be Held By Production.

The part about the Lease not being in the title reports subsequent to the 1964 one is an important one. Make sure that the reports prepared when you sold the Condos very clearly contained language to the effect that no minerals were researched or your backside might be wide open. Of course, if that verbiage was left out and action was initiated against you, you would probably have recourse against your own Title and insurance companies.

Someone more oriented or knowledgeable of the oil and gas industry might have picked up on the fact that a Lease had been signed and checked it out, especially given the fact that in the 1964 papers they went to such lengths to describe how no further research was done on it. But that would have fallen to you or your successors in title.

Either way, that does not forgive conversion of over $24,000…

One other thing to note: It’s really surprising to me that a company would contact you after all these years and help you straighten out your ownership. They are typically too busy moving forward, which is why you have to prove any changes in ownership in producing properties to them, not vice versa.

I’ve been wrestling records for oil and gas companies for 37 years and the only reason I can think of as to why they suddenly showed up is that they have plans for future development activities for your lands. Probably additional drilling.

Wouldn’t that be Cool Beans!

Can you send me a copy of the 1964 Lease?

Charles