How does leasing work in this circumstance: A production company that owns an old lease with a small, 70-year-old gas well and also holds several hundred acres that are not pooled. These acres were not released because no release clause is in the lease. Can this company in turn lease (sub-lease?) to another production company? If so, must the new lease/sub-lease have the original royalty percent (1/8) or can it have a higher royalty percent (e.g., 1/5)? If it can, and the new lease/sub-lease leads to a new well, does the mineral owner receive royalty payments based on 1/8 or 1/5?
The mineral owner receives royalties based on the existing lease terms until the lease expires. The lessee can hold the lease or sell it to other companies. A sale can be in part, such as company retains the currently producing depths and sells the leasehold of nonproducing depths or acreage. The selling lessee may receive cash or could take an override on the lease or whatever financial terms are agreed between those parties. None of this affects the mineral owner and royalties paid under the lease. You are not alone in being held to a 70-year-old lease. As an aside, it is very likely that the depths and acreage under the lease have already been severed and sold multiple times over the years. To determine what companies own varying parts of the lease, you have to research the assignments filed in the County deed records.
“Purchasing” parts of the lease seems to be a risky business venture for the new owner of unpooled depths or acreage. If the feeble old original well were to become sufficiently unproductive to be unprofitable, the original lease could terminate. This would release everything.
That is true at current production. But back in the early days it would have been less risky. In my experience, many of these old leases were subdivided 30 or 40 years ago. From your perspective the question is will the lease terminate before a new well is drilled. That depends on the lease terms.
In the circumstance I outlined above, would a production company that wanted to drill a deep horizontal well at an unpooled depth have to purchase that portion of the original lease or could some other arrangement be made with the current lessee?
TennisDaze: Thanks for sharing your knowledge about the history of leases. It seems likely that the selling lessee who owns the deep portion of an old lease and a large producers who wants to drill a horizontal well would set up an override agreement. The low royalty terms in old leases (e.g., 1/8 or 1/7) makes this agreement easier to be achieved.