Is there any recourse for "failure to perform" of a producer?

#1

Hello,

We have mineral rights interest in land in Northern Louisiana. Approximately 3-4 years ago, our lease with “Company A” was bought out by “Company B”. Big Company A was doing very well at getting infrastructure in place, putting in pad sites, and drilling the first of a handful of wells. They got lots of good gas out, and we got a good return. Then they sold.

As I have researched Company B, it appears that they are generally recognized as not having the experience or the expertise in that Terryville play to reliably and profitably get the gas out of the ground. So, they have refocused efforts on some of their other national assets while ours lay (nearly) fallow. It’s still trickling out gas from what’s there, but nothing like what it should be producing.

Do we have any recourse for not pumping the gas?

Thanks in advance-

#2

You do not have much recourse. If the wells are uneconomic, then that may be a way to terminate your lease. That depends on state law and the terms of the lease. Gas prices have been low and the company can argue that drilling new wells or upgrading would not be remunerative. Often, larger companies develop a field by drilling and producing until it is not economic to carry their overhead and then sell to smaller companies which can continue to operate as they have fewer layers of employees and internal costs. Gas wells can limp along for decades producing small volumes.

#3

I see, thank you for taking the time to explain it. Your response was very helpful.

Best of the new year to you.

#4

HBP can be a doozy! Operators can maintain minimal production just to keep the lease active, even if they aren’t developing the property intensely.

#5

Spess Oil in Oklahoma is notorious for that. I am caught in their web now, where they have the underlying lease on some minerals I own, and they are pulling bare minimal production out to keep their old 1/8 lease alive. As a result, we can’t lease to a company that wants to drill a horizontal well.