Is there a difference in the terms “horizon” and “formation” when it comes to depth clauses on a lease. We have had a request to change our current lease wording from horizon to formation.
I could be wrong but in my opinion you’d be better off with “horizon” instead of “formation”.
For example if a well is completed in the Wolfcamp A “horizon” and the depth severance clause in the lease states that upon expiration of the primary term of the lease….”lessee shall release all depths lying below 100’ below the deepest producing horizon” the lessee would only hold rights as to 100’ below the base of the Wolfcamp A and if they wanted to drill an additional well and complete in the Wolfcamp B, C, etc. they would have to re-lease those depths and pay another bonus.
If the lease stated “….lessee shall release all depths lying below 100’ below the deepest producing formation”, the lessee would retain the rights in all of the Wolfcamp “horizons” (A, B, C, etc.) all the way down to 100’ below the base of the Wolfcamp formation.
Thank you!
That makes sense. We are specifically talking about the Sprayberry and I am not sure how many horizons there may be in that formation. This is the first time we’ve dealt with this sort of thing.
I agree with WTX878 that horizon would be the better choice because it’s a smaller unit. a formation can have multiple horizons. one challenge (btw - I’m not familiar with WTX…) is that horizon’s aren’t always mapped, whereas formations typically are.
it will be interesting to see what the operator says when / if you say no to the suggested change.
interesting question, so thanks for sharing it on the forum.
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I don’t think our attorneys have used the term horizon on most of our leases, so I may try to find out why they felt the need to add it to this lease.
well - a larger unit benefits the operator in terms of what’s held - so that would likely be the reason. all that said, the horizon language would seem to be more complicated to enforce unless there are established “horizon’s” identified in the area in question (again, I’m not familiar with WTX).
If there was a dispute, I’d think a court would look to the “plain and ordinary meaning” of the word at the time the lease was signed (unless horizon was further defined in the lease).
The Schlumberger Energy Glossary defines a horizon as - 1. n. [Geology] An informal term used to denote a surface in or of [rock], or a distinctive [layer] of rock that might be represented by a [reflection] in [seismic]data. The term is often used incorrectly to describe a zone from which hydrocarbons are produced. 2. n. [Geophysics] An interface that might be represented by a [seismic] reflection, such as the [contact] between two bodies of [rock] having different [seismic velocity], density, [porosity], fluid content or all of those.
There may be other ways to define horizon, but I’d think this is an example of what might be considered the “plain and ordinary meaning” in the oil and gas world as of today’s date.
As a general rule I prefer to leave as little to interpretation outside of the lease as possible to prevent a dispute down the road.
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