What actions must be taken by an oil company in order to tie a lease up. Example: If the lease agreement expires May 15 but some type of surface work (such as an access road to well site, pit area completed) has been coducted at lease site in April, does this tie the lease up whereas the expiration would not apply?
I have heard, that in the past, that operations were claimed to be going on simply for staking a site. I don't know how that turned out. In the staking case I'd get a lawyer. If they built a road and dug a pit; I'd say [ personally ] that they have commenced operations. If they built a road and dug a pit and then did nothing for 90 days after [ Grace period in the lease I just looked at ] then they don't seem to be conducting operations. I'm not a lawyer. I suggest you get a lawyer in this situation. RWK
Mr. Mallory,
First, what state?
Second, what does your lease say? Some say "drilling operations" and some say "operations for drilling (a more liberal clause)"
In some jurisdictions, the act of staking a well was considered "operations for drilling" as long as other operations were prosecuted as a reasonable and prudent operator would conduct.
Our lease form provides that the well must be staked, turning to the right and spudded in with a well capable of reaching permit depth prior to the expiration of the primary term.
First place to look is the language of the lease to which you agreed.
Mr. Cotten:
The states I'm referring to are North Dakota and Montana. I have reviewed my leases and the language is structured in a manner somewhat you stated. This question came into my mind as I have had experience in the past on a large play in East Texas whereas a large operator began building lease roads to proposed well sites up to a year before the well was actually drilled. I don't know how the Oil and Gas laws of these two states enforce this situation but I think the bottom line is how your lease reads. Thanks for the information.
Charles S. Mallory
Buddy Cotten said:
Mr. Mallory,
First, what state?
Second, what does your lease say? Some say "drilling operations" and some say "operations for drilling (a more liberal clause)"
In some jurisdictions, the act of staking a well was considered "operations for drilling" as long as other operations were prosecuted as a reasonable and prudent operator would conduct.
Our lease form provides that the well must be staked, turning to the right and spudded in with a well capable of reaching permit depth prior to the expiration of the primary term.
First place to look is the language of the lease to which you agreed.
Best,
Buddy Cotten
Mr. Cotten:
The areas where we have minerals in both Montana and North Dakota was spaced last year. Do you know if this would constitute an "operation for drilling" as you stated in your reply?
Buddy Cotten said:
Mr. Mallory,
First, what state?
Second, what does your lease say? Some say "drilling operations" and some say "operations for drilling (a more liberal clause)"
In some jurisdictions, the act of staking a well was considered "operations for drilling" as long as other operations were prosecuted as a reasonable and prudent operator would conduct.
Our lease form provides that the well must be staked, turning to the right and spudded in with a well capable of reaching permit depth prior to the expiration of the primary term.
First place to look is the language of the lease to which you agreed.
Best,
Buddy Cotten
Montana is well settled as to the differences between operations for drilling (preliminary work) and drilling operations (actual spudding).
North Dakota does not have specific case law on whether "commencement of drilling operations" means actual spud and drilling. It is generally accepted in North Dakota that unless the lease specifically provides for actual spudding of a well prior to the end of the primary term, then surface prepatory actions are sufficient, if they are conducted in good faith.
Operations must be PHYSICAL in nature. Not filing a permit or asking for a spacing unit. PHYSICAL work, either staking the well, preparing the surface, laying pads, putting in roads, digging pits, etc. count. Filing a form does not.
Make it easy on yourself if you are concerned -- make sure your next lease requires actual spudding with a rig sufficient to reach permitted depth prior to the expiration of the primary term.
Mr. Cotten:
Your answer is what I was thinking in regards to merely filing paperwork vs doing physical activities. Thanks for your reply.
Charles S Mallory
Buddy Cotten said:
Montana is well settled as to the differences between operations for drilling (preliminary work) and drilling operations (actual spudding).
North Dakota does not have specific case law on whether "commencement of drilling operations" means actual spud and drilling. It is generally accepted in North Dakota that unless the lease specifically provides for actual spudding of a well prior to the end of the primary term, then surface prepatory actions are sufficient, if they are conducted in good faith.
Operations must be PHYSICAL in nature. Not filing a permit or asking for a spacing unit. PHYSICAL work, either staking the well, preparing the surface, laying pads, putting in roads, digging pits, etc. count. Filing a form does not.
Make it easy on yourself if you are concerned -- make sure your next lease requires actual spudding with a rig sufficient to reach permitted depth prior to the expiration of the primary term.
Best,
Buddy Cotten
Mr. Cotten,
Do you happen to know the specific Montana case law where the difference between operations for drilling and drilling operations are discussed. I am attempting to determine what Montana case law/courts will define commencement of operations as. Thanks.
charles s mallory said:
Mr. Cotten:
Your answer is what I was thinking in regards to merely filing paperwork vs doing physical activities. Thanks for your reply.
Charles S Mallory
Buddy Cotten said:Montana is well settled as to the differences between operations for drilling (preliminary work) and drilling operations (actual spudding).
North Dakota does not have specific case law on whether "commencement of drilling operations" means actual spud and drilling. It is generally accepted in North Dakota that unless the lease specifically provides for actual spudding of a well prior to the end of the primary term, then surface prepatory actions are sufficient, if they are conducted in good faith.
Operations must be PHYSICAL in nature. Not filing a permit or asking for a spacing unit. PHYSICAL work, either staking the well, preparing the surface, laying pads, putting in roads, digging pits, etc. count. Filing a form does not.
Make it easy on yourself if you are concerned -- make sure your next lease requires actual spudding with a rig sufficient to reach permitted depth prior to the expiration of the primary term.
Best,
Buddy Cotten
On the expiration date of the lease if a well has not been spudded on the lease or on a lease pooled with the lease, send a certified letter to the Lessee advising them of this fact and give them thirty days to file a release of record in the county in which the minerals are located. This will serve as notice under the terms of the lease and will get you a response from the Lessee. Once the lessee has responded, you can turn it over to your attorney and decide if the Lessee is holding the lease past the primary term by continuing operations as defined in the lease or not.