I have a lease that states as long as there is production the lease is held. It states the lease will terminate if there is no production for 24 months, whether contiguous or total. There have been 12 total months of no production. I have 3 wells, 2 are shut in, only 1 pumps. The original driller sold the lease and the new company only pumps 1 well for a few days a month to maintain production. Is there any way to resolve this and get my lease terminated or sold to a company that will make full use of the wells?
For lease termination, it depends on the exact wording in your lease as a whole document and the case law in your state. Could lease be terminated for lack of paying quantities? You would need idea of monthly costs. Over time for any well, there is a slowing of production volumes. If there is a pumpjack, it will be set to run intermittently to allow pressure to build and oil to move so it can be produced. Whether anyone would reopen the shut-in wells depends on the reason they were shut in. Do they need major workover which may not be economic? It is not inexpensive to plug and so the operator will keep that single well producing.
Is each well under a different lease? If not, one well can hold the whole lease. Also, what state? Your lease may have a 24 months shut in clause, but the state can over rider it. That is why it's so important to get a good oil & gas attorney to look at the lease before you sign. In your lease, did you put a clause that anything outside the spacing unit will be released if no production? I would guess with oil prices down they are just trying to whole the lease till oil goes up. Also, do you really want them to produce all your oil cheap so you can get a little check or do you want to wait till it's at least $70 BB?
EJ,
Following up on Virginia's question, what state is the parcel(s) in? Each State has different rules regarding 'marketable production quantities'.
The wells are in Texas and in working condition.
The wells are all located on the same lease. The operator says there are economic reasons - too much water. I don't doubt there will be $70 oil - just don't know if a 70 year old man will see it. I don't expect full production, but this seems unfair to produce just enough to hold.
Texas
if the operator is on record as saying "The operator says there are economic reasons - too much water. " you may have a "paying quantities" argument. There are some decent attorneys on this site that should be qualified to help you with the correct answer - it will come down to the language in your lease and state laws (implied convents, etc)
EJ,
Welcome to oil & gas business. I would say it would be very hard to get 3 wells released even if they aren't producing well. I had an oil company that would pump one of my wells about a week out of the month on one farm. But, they sold some of the oil under the well across the road to hold that lease while they tried to sell both leases. I started checked the wells and the pump rod wasn't even on the pump across the road, I knew their wasn't a way they could be getting oil from that well. I took pictures that were dated, called my attorney and I did get my 2 leases back. But, it is costly.
Mr. Hartman,
Even if your lease truly does say as long as there is production, the lease is held, the courts have held that there must be production in paying quantities.
These items are terribly fact specific, but a short discourse can be found here:
http://www.mineralrightsforum.com/profiles/blogs/production-in-payi...
The 24 month time period that you are referring to in your question, is that the shut in royalty provision? Perhaps you could upload a copy of the lease.
Best,
Buddy Cotten