I received a lease renewal, and finally deposited it today, after holding it for a week or so, (I live way out of town). I got a call this evening from the company making the payments saying they weren't supposed to have paid it because a well was spudded prior to the lease date. They also said the company told them to stop payment on the check, and that if it is paid, they would take the lease amount out of the royalty payments. Never had anything like this happen to me before. Any comments?
William, I think that check is yours. They paid for a lease renewal/extension and they have an extension. If I buy something I don't need, I can't just ask for my money back. If It's enough money, I would check with a lawyer. If not I would wait and see if they want to take my money without the adjudicated right to do so. You might check on the spud date of that well too.
They paid for the extension before they knew they would make it in time and now they want their money back because they didn't need the extra time after all? Sorry, no refunds. If they stop payment, I would place the check on law enforcements desk.
I would be loud about it too, I'm sure it would do their public image all kinds of good!
r w kennedy said:
William, I think that check is yours. They paid for a lease renewal/extension and they have an extension. If I buy something I don't need, I can't just ask for my money back. If It's enough money, I would check with a lawyer. If not I would wait and see if they want to take my money without the adjudicated right to do so. You might check on the spud date of that well too.
They paid for the extension before they knew they would make it in time and now they want their money back because they didn't need the extra time after all? Sorry, no refunds. If they stop payment, I would place the check on law enforcements desk.
I would be loud about it too, I'm sure it would do their public image all kinds of good!
Hello,
I was thinking along the same lines. I've made some financial decisions since I got the check that I wouldn't have made otherwise.
Thanks for the reply,
Bill
Dear Mr. Lyles,
It does sound initially like that the operator made an error, but you do not know that for sure. For example, was the pooling order filed before the lease expired? Was the well commenced in accordance with the lease form(s)?
If you are truly looking for a comment, I will give you mine. If your underlying question was on what the right thing to do is, then you have already answered your own question. Because you had to ask the questions, probably made it too close to the line for you, too.
If the Operator paid the money in accordance with the lease terms, you have no way of knowing whether that payment was an "insurance" type payment just in case the well was not commenced timely. If they did pay the monies in accordance with the lease, then I do not see a way that can withhold royalties. As to the company who made the payment, I would sure ask them what would they do if a dry hole was drilled with no hope of royalty? Sue me?
Best
Buddy Cotten
I am learning a lot by reading all these comment. Keep up the good work. jack Tucker jackfran@wowway.com
What does spudded mean? Sounds like something that would happen to me. Jack Tucker jackfran@wowway.com
Spudded in means surface drilling has been done or began. To spud in is when the first bit for the surface pipe has hit the ground and drilling operations has began.
Spudded in is a term defined in many landowner lease forms to remove doubt. Language like "spudded in" might be defined as that point in time that the drill bit is rotating under power with a rig and draw works capable of drilling the well to the permitted depth.
HOWEVER, in most lease forms provide that "operations for drilling have commenced" rather than spudding in. Operations for drilling would include (in all states that I am aware of) preparation of the drilling pad, putting in a road, etc., as long as said operations are conducted and prosecuted in good faith. If you put in a pad 1 month before the lease expiration and the rig did not arrive until 5 months later, then the operator has a problem. However in many Lessee forms there is savings language in the force majure clause that could define 'inability to procure rigs, equipment, etc' as a force majure trigger.
Landowner lease forms tend (the good ones) to define many terms so that there is no misunderstanding. For example. What does '...primary term expiring 3 years from the date hereof..." actually mean? A clearer way of defining primary term would be "...primary term expiring on March 13, 2017 at 1:00 P.M. local time..."
Buddy Cotten
Thanks for your input. I keep learning more from you people all the time. Jack Tucker
It would actually be better to have a clause in the lease that nothing but production would save the lease for the lessee beyond the primary term of years. If the lessee can not get a well in in 3 years, he should buy another year.