Can a lease be held by a oil company in North Dakota by just getting a drilling permit and staking the well site or must they be setting casing at the date the lease terminates?
What does your lease say with respect to the term of the lease and what will extend the lease beyond the primary term?
If your lease has a standard continuing operations clause, staking the well may not be enough but building a road or pad, digging a pit or drilling a water well certainly would be considered substantial. I think I would ask an experienced oil and gas lawyer if staking was enough, and I believe a permit has no bearing on continuing operations in ND, permits expire and are cancelled constantly. I think continuing operation clauses are a bad idea. Many people have leases with 180 day grace periods for continuing operations, build a road and gain 180 days, build a pad, another 180 and so on, it's a free lease extention. Nothing but production should save the lease for the operator and if the operator needed more time he should have bargained and paid for it or sought an extention or new lease. The shut in clause is another such clause where the operator may hold a lease to no purpose you would have agreed to if you had thought of it. There needs to be a cap on how long an operator can hold your lease with a shut in well, 2 years seems reasonable. What purpose of the lessors would it serve to be stockpiled for the future ? Supposedly the lease contract was based on the operator wanting to produce your minerals and the lessor gives up right to the minerals in exchange for a lease bonus and royalty interest. If the lessee drills and does not produce your minerals and holds your lease though some clever clause you have effectively sold your minerals for the lease bonus only, a deal I doubt you would have made if it was offered to you outright. If there is a next time, tear the lease apart clause by clause until you understand them all seperately, add them back in one at a time considering each clause and it's bearing on other parts of the lease, then sign it if you still want to, or start to negotiate a lease that you can live with. I have spoke with others who the operator said were held by continuing operations and they got a new lease, bonus and a higher royalty. Don't expect the operator to tell you the truth. If you let it happen, it's a done deal. It's up to you.
Duane:
As the previous responses stated, the wording in the lease is very important in regards to this matter. A statement can be added to any lease which will somewhat protect the mineral owner from being HBP with only little actions by the operator/lessee. Wording such as : "Drilling in any clause of this oil and gas lease which permits extension of the primary term of the lease means an actual drilling rig capable of drilling the well to the proposed depth, whether total vertical depth in a vertical well or total measured depth in the case of a horizontal well, is on location and actively drilling prior to the expiration of the primary terms of this lease". This wording in the lease will prevent an operator from just building a road, location, drill pit, etc. and trying to say the lease is HBP. Good luck in your leasing.
Charles & R W,
Thanks to both of you!! I especially, like the part how R W describes to tear the lease apart clause by clause to get a thorough understanding of its meaning and intent and then putting it back together again, piece by piece, so to speak! And, I also, like the clause Charles added, they both are brilliant!!
I learned many years ago, if you "blind-sign" any forcible binding contract/document/agreement, you can expect to get burned, sooner or later!!