Does a lease expire?

Oil and Gas Leasing Help
1

My five year lease with Empire Oil Co. expires in April, 2011. The land is in Burke County (320 acres) and has a producing well on it (well went “active” in the fifth year of the lease). I note that in the lease it states “… this lease shall remain in force for a term of five years from this date and as long thereafter as oil or gas of whatsoever nature or kind is produced from said leased premises…” My questions are:

  1. Does that wording mean that as long as there is production the lease never expires? (That really doesn’t make sense to me.)

  2. I received $40/acre ($12,800.00). At the time there was no producing well. If I do negotiate a new lease in April, and now that there is a producing well on the property, is this number negotiable?

  3. The lease is for a 15% royalty interest. Is this number negotiable?

Any and all assistance is appreciated. Thank you.

Hal

2

My understanding is you are locked in from the info provided. You should receive 15% of the production. My family has leases signed in 1900 and 1921 that are still in effect as newer wells have been drilled and production has never ceased. Now the gas company has returned seeking amendments to drill Marcellus.

3

Dear Hal,

  1. The lease will now expire with production. There are two terms in an oil and gas lease. The primary term and the secondary term. The primary term is the “5 years” and the secondary term is the “…and as long thereafter…”

What most jurisdictions hold is that an oil and gas lease is a conveyance of the mineral estate in the manner of a determinable fee with the lessor having a cost free share of production and the possibility of reverter.

  1. If the lands are in production in April, there will be no other payment other than the cost free share of production (royalty payable under the first lease) and since the lease has been perpetuated into its secondary term by production, there will be no opportunity to negotiate a new lease at that time.

  2. The royalty rate is not subject to negotiation at this point inasmuch as there is no opportunity to lease.

4

Thank you. I’m slowly getting an education here.

5

Thank you.

6

Hal,

You may want to check and ensure that the spacing for the well covers your entire property. There is a chance that some of your property should be released from the lease since the well spacing does not cover it and it may be a candidate to be leased again when the current lease expires.

In Oklahoma, if the well is a gas well, the spacing would normally cover 640 acres, however an oil well is normally spaced at 160 acres. If it were property in Oklahoma, I would be using the Oklahoma Corporation Commission site and pull all the paperwork on the well and see if there are any specific spacing orders. If not, then you can usually use the 640 or 160 acre spacing depending on whether it’s a gas or oil well.

There should be a specific location for the well. In Oklahoma it is stated in Sections-Townships-Ranges and then broken down by NW4, SW4, S2, etc. The NW4 indicates it in the northwest quarter of that section. The S2 would indicate the south half. Etc.

So, if you have a well that the location is stated to be 20-07N-17W, NW4, that indicates it’s in the northwest quarter of Section 20 of Township 07 North and Range 17 West. That indicates the well is on 160 acres of the northwest quarter of Section 20 (Sections are 640 acres, or about 1 square mile). If there are no additional spacing orders for the well from the State and it is an oil well, then the other quarters under which you own mineral rights, may be able to be released when the lease expires, but this may also depend on your state statutes and the wording of your lease.

Just FYI, you can often times get monthly production numbers off the website that oversees oil and gas for your state. In Oklahoma it’s the Oklahoma Corporation Commission. In Texas, it’s the Texas Railroad Commission. You may want to double check these numbers against the details on the production checks you receive to ensure they match.

You may also want to check your state statutes on oil and gas to see what the state says about property being able to be released if it’s not directly covered in a well spacing. In Oklahoma that is Title 52 of the state statutes.

If it’s an oil well spaced at 160 or fewer acres, you may be able to get Empire Oil to release the other acreage, however, this is all best done with the advice of a good, trustworthy oil and gas attorney. An attorney will most likely have to get involved to review your lease and see if there is a way to get the additional property loose from Empire when the lease expires.

If you don’t know a trustworthy oil and gas attorney, I can see if ours knows someone in your area or post a question here on Mineral Web asking for someone that folks trust in your area.

M. D. Wood www.melsmineralmanagement.com

7

Thank you M.D. for your extensive reply- I appreciate your taking the time. You are among the many kind folks that reside on this forum that are so helpful to neophytes like myself.

M. D. Wood said:

Hal,

You may want to check and ensure that the spacing for the well covers your entire property. There is a chance that some of your property should be released from the lease since the well spacing does not cover it and it may be a candidate to be leased again when the current lease expires.

In Oklahoma, if the well is a gas well, the spacing would normally cover 640 acres, however an oil well is normally spaced at 160 acres. If it were property in Oklahoma, I would be using the Oklahoma Corporation Commission site and pull all the paperwork on the well and see if there are any specific spacing orders. If not, then you can usually use the 640 or 160 acre spacing depending on whether it’s a gas or oil well.

There should be a specific location for the well. In Oklahoma it is stated in sections-townships-ranges and then broken down by NW4, SW4, S2, etc… The NW4 indicates it in the northwest quarter of that section. The S2 would indicate the south half. Etc…

So, if you have a well that the location is stated to be 20-07N-17W, NW4, that indicates it’s in the northwest quarter of section 20 of township 07 north and range 17 west. That indicates the well is on 160 acres of the northwest quarter of section 20 (sections are 640 acres, or about 1 square mile). If there are no additional spacing orders for the well from the State and it is an oil well, then the other quarters under which you own mineral rights, may be able to be released when the lease expires, but this may also depend on your state statutes and the wording of your lease.

Just FYI, you can often times get monthly production numbers off the website that oversees oil and gas for your state. In Oklahoma it’s the Oklahoma Corporation Commission. In Texas, it’s the Texas Railroad Commission. You may want to double check these numbers against the details on the production checks you receive to ensure they match.

You may also want to check your state statutes on oil and gas to see what the state says about property being able to be released if it’s not directly covered in a well spacing. In Oklahoma that is Title 52 of the state statutes.

If it’s an oil well spaced at 160 or fewer acres, you may be able to get Empire Oil to release the other acreage, however, this is all best done with the advice of a good, trustworthy oil and gas attorney. An attorney will most likely have to get involved to review your lease and see if there is a way to get the additional property loose from Empire when the lease expires.

If you don’t know a trustworthy oil and gas attorney, I can see if I our’s knows someone in your area or post a question here on Mineral Web asking for someone that folks trust in your area.



M. D. Wood
www.melsmineralmanagement.com