Now that we have a surplus of oil and gas

West Virginia Mineral Rights Tyler County, WV
1

Hello! Do you know if wells are being capped, or plans delayed, or is production going to market (and royalties received)? Any opinion?

EX: A coworker said his friend had his well capped in Fayette County, Pennsylvania. It was estimated to pay him $30k/month. Production is not happening under current market conditions.

EX: Are wells producing but not going to market (hence no royalties)?

Also, are state/federal taxes typically deducted from royalty payments or paid when filing or quarterly?

THANK YOU for any comments.

2

I think the companies are trying to force us to just give them the gas!! Look at the market price of gas, it’s up not down. We need for us all to meet up, said… Charleston Capital? And I know for fact that Nobel was behind forced pooling. Got that from Pula Flemming, East Coast CEO. We got to group up before they steal it from us!!

3

If your post is stating that wells are being “shut-in” (meaning, they are capable of producing oil or gas but they are not being allowed to produce), the first thing that comes to my mind as a professional division order analyst is that the terms of a standard oil and gas lease requires that a lease beyond its primary term can only be continued by “production.” Every standard lease has several situations that can be substituted for actual production, such as payment of shut-in royalties (“make-believe” royalties paid to royalty owners as a kind of place marker until the well starts producing again, and shut-in payments cannot be recouped from actual production royalties). Here’s an example of a shut-in clause from a recent Texas oil & gas lease:

“Where gas from a well capable of producing gas only is not sold or used, Lessee shall pay as royalty to Lessor’s address above One Hundred Dollars ($100.00) per acre per year, commencing on or before ninety (90) days after completion of such shut-in gas well or if the well has previously produced gas, then within ninety (90) days after such well is shut-in and annually thereafter, and while such payment is made it will be considered that gas is being produced with the meaning of Paragraph 2. hereof; provided, however, it is agreed that after the end of the primary term hereof, this lease may not be maintained in force and effect solely by the payment of shut-in royalty for a cumulative period in excess of three (3) years.”

So does the lease have a shut-in clause? If it states only gas may be shut in, then as soon as an oil well is shut in and production ceases, the lease will automatically terminate. There’s no “capping” it without losing it, here in Texas. The only way to save it is to have at least one other well flowing and producing from the lease, that will hold the lease until the shut-in well comes back online. But it doesn’t sound like that is what is happening in the friend’s situation. If the lease has now expired, the friend of the co-worker can get another signing bonus to restore the lease, and might have other options also.

I hope the company is not using the “re-work” clause to try and hold the lease. This is where they go out to the well and do some kind of minor work on it, perhaps claiming it will enhance production. They only have to work on it for one day, then not have to come back and “work on it” again for anywhere from 30 to 90 days, depending on the terms in the re-work clause in the lease. They can do this over and over until they are ready to flow the well again. That will also hold a lease, but it is questionable whether it is ethical and done in good faith, and in Texas can be challenged.

4

Great reply Marsha. I’ll have to read that again a couple times… William, I agree…

5

Thank you ancel, and Marsha thank you for the heads up.

6

Actually under the Oil & Gas agreements there is a clause that covers the first years of the contract, then another clause that allows them to come back after the original agreed time is over and drill for free without paying royalties. Basically this means in the first part they can cap, come back after the contract is over and drill which gives them lock on your minerals and you can do nothing about it. Statoil, whose parent company is out of Connecticut, controls that part. These clauses are standard in Oil & Gas lease agreements, but there is a way to fight it. But if you have already signed your lease and the deadline is passed to pull out of the agreement, you are stuck. My family has a lot of land going back to early 1800s and the Oil & Gas companies are trying to get it for free. My family mineral rights cover Tyler, Doddridge, Wetzel, under the Anderson, Parker, Underwood, Swiger, Pratt, Cains.

7

Thank you for your message above Randy. In my lease of 1902 I don’t recall such a clause…what you have described is pretty sophisticated and I would catch that …the old lease is much simpler…for instance, flat rate and free gas…perhaps in leases that are new or more recent.

8

The old contracts don’t have those clauses I spoke of. My great grandparents’ old lease from Tyler doesn’t have the clause either. These are new clauses called the Pugh clause. My family’s lease goes back to 1902 also. My family actually drilled the first well in Tyler before 1902 and still pumps today. This well was drilled by the Andersons and Parkers.

Ancel Smith said:

Thank you for your message above Randy. In my lease of 1902 I don’t recall such a clause… what you have described is pretty sophisticated and I would catch that… the old lease is much simpler… for instance, flat rate and free gas… perhaps in leases that are new or more recent.

9

Line 25 Statoil Oil & Gas Lease first few lines:

Lessee is hereby given the option to extend the primary term of this lease for an additional Five (5) Years from the expiration of the original primary term. This option may be exercised by lessee at any time during the last year of the original primary term by paying Lessor herein, or their heirs, successors or assigns, at the address written above, the sum of $0.00 per net acre.

10

Dear Mr. Barnes,

Could you upload the lease to which you are referring? I need an educational experience on this clause. If it is the clause that essentially reads: “This lease shall remain in force and effect for a period of XX years from the date hereof and for as long thereafter as oil and gas, or either of them are produced in paying quantities”, then don’t upload the lease. That is the way almost all leases are written. But I am dying to see a lease that provides for a company to come in after a time and not pay royalties on production.

Best,

Buddy Cotten

11

Dear Mr. Barnes,

The “new clauses called a Pugh clause” was first developed in 1947 by a lawyer in Crowley, Louisiana by the name of Lawrence Pugh. He developed the clause in response to a court case having to do with a lease maintaining multiple non-contiguous tracts from production on one tract.

If it is new to you does not mean that it is new.

Best

Buddy Cotten

12
  1. (line 25) Lessee is hereby given the option to extend the primary term of this lease for an additional five (5) years from the expiration of the original primary term. This option may be exercised by Lessee at any time during the last year of the original primary term by paying to Lessor herein, or their heirs, successors or assigns, at the address written above, the sum of $0.00 per net acre. Lessee shall exercise such option by placing written notice of such action in the U.S. Mail, postage prepaid, to Lessor at the above address, or by delivery of such notice to Lessor, in either case, prior to the end of the primary term hereof or if operations are being conducted on such lease or lands pooled therewith at the expiration of the primary term in such manner as to maintain this lease in force, within thirty (30) days after the completion of a dry hole resulting from such operations. Any such written notice shall include Lessee’s check payable to Lessor. Should this option be exercised as herein provided, it shall be considered for all purposes as though this lease originally provided for a primary term often (10) years.

Dear Mr. Barnes,

Could you upload the lease to which you are referring? I need an educational experience on this clause. If it is the clause that essentially reads: “This lease shall remain in force and effect for a period of XX years from the date hereof and for as long thereafter as oil and gas, or either of them are produced in paying quantities”, then don’t upload the lease. That is the way almost all leases are written. But I am dying to see a lease that provides for a company to come in after a time and not pay royalties on production.

Best,

Buddy Cotten

Mineral Manager

Actually under the Oil & Gas agreements there is a clause that covers the first years of the contract, then another clause that allows them to come back after the original agreed time is over and drill for free without paying royalties. Basically this means in the first part they can cap come back after the contract is over and drill which gives them lock on your minerals and you can do nothing about it. Statoil whose parent company is out of Connecticut controls that part. These clauses are standard in Oil & Gas lease agreements, but there is a way to fight it. But if you have already signed your lease and deadline is passed to pull out of the agreement you are stuck. My family has a lot of land going back to early 1800’s and the Oil & Gas companies are trying to get it for free. My family mineral rights cover Tyler, Doddridge, Wetzel, under the Anderson, Parker, Underwood, Swiger, Pratt, Cains.

13

(line 25) Lessee is hereby given the option to extend the primary term of this lease for an additional five (5) years from the expiration of the original primary term. This option may be exercised by Lessee at any time during the last year of the original primary term by paying to Lessor herein, or their heirs, successors or assigns, at the address written above, the sum of $0.00 per net acre. Lessee shall exercise such option by placing written notice of such action in the U.S. Mail, postage prepaid, to Lessor at the above address, or by delivery of such notice to Lessor, in either case, prior to the end of the primary term hereof or if operations are being conducted on such lease or lands pooled therewith at the expiration of the primary term in such manner as to maintain this lease in force, within thirty (30) days after the completion of a dry hole resulting from such operations. Any such written notice shall include Lessee’s check payable to Lessor. Should this option be exercised as herein provided, it shall be considered for all purposes as though this lease originally provided for a primary term often (10) years. Our Oil & Gas Attorney has already advised us not to sign and we have asked for a new revised Oil & Gas Lease which has been done in past, at which after five years there will be no extension granted.

Dear Mr. Barnes,

Could you upload the lease to which you are referring? I need an educational experience on this clause. If it is the clause that essentially reads: “This lease shall remain in force and effect for a period of XX years from the date hereof and for as long thereafter as oil and gas, or either of them are produced in paying quantities”, then don’t upload the lease. That is the way almost all leases are written. But I am dying to see a lease that provides for a company to come in after a time and not pay royalties on production.

Best,

Buddy Cotten

Mineral Manager

Actually under the Oil & Gas agreements there is a clause that covers the first years of the contract, then another clause that allows them to come back after the original agreed time is over and drill for free without paying royalties. Basically this means in the first part they can cap come back after the contract is over and drill which gives them lock on your minerals and you can do nothing about it. Statoil whose parent company is out of Connecticut controls that part. These clauses are standard in Oil & Gas lease agreements, but there is a way to fight it. But if you have already signed your lease and deadline is passed to pull out of the agreement you are stuck. My family has a lot of land going back to early 1800’s and the Oil & Gas companies are trying to get it for free. My family mineral rights cover Tyler, Doddridge, Wetzel, under the Anderson, Parker, Underwood, Swiger, Pratt, Cains.

14

Dear Mr. Barnes,

This clause is generally referred to as an “Option to Extend.” Clearly a mistake was made on stipulating an option bonus at $0.00. When you said “no royalty” I think that you said it in error or was confused as to terminology.

You might want to read my blog concerning such a clause that I wrote 4 years ago, located here:

http://www.mineralrightsforum.com/profiles/blogs/3-year-plus-2-year-kicker

Good luck to you. I bet that your attorney can find a few more items to modify, if he does his job.

15

Dear Mr. Smith,

To answer your question, if a well is producing, it is flowing to sales. Many wells are capable of producing, but are being kept offline until prices improve (or infrastructure put into place). There are lease clauses to deal with such matters. It used to be that only gas wells could be shut in by the terms of the lease. Now some leases are saying “oil or gas wells” can be shut in.

What does the friend of a co-worker mean when he said the well is “capped?” Does he mean that it is plugged? Does he mean that the valve is turned off and there is no production? A layman using technical terms gets them wrong more often than not.

Lastly, no FIT or SIT are deducted from royalty checks, unless you screwed up royally and have a mandatory 30% deduction.

Best, Buddy Cotten

16

Stateoil already confirmed not a mistake. Stateoil confirmed NO Royalty. My family, who owns the mineral rights in Tyler County, are the Anderson Family of Muddy Creek going back to Robert Anderson Senior, Robert Anderson Junior, Daniel Anderson, David Anderson, Thomas D. Anderson, all descendants of Charles Anderson Hartford Maryland, signer of the first actual Declaration of Independence. We’re talking about 600 acres.

Buddy Cotten said:

Dear Mr. Barnes,

This clause is generally referred to as an “Option to Extend.” Clearly a mistake was made on stipulating an option bonus at $0.00. When you said “no royalty” I think that you said it in error or were confused as to terminology.

You might want to read my blog concerning such a clause that I wrote four years ago, located here:

http://www.mineralrightsforum.com/profiles/blogs/3-year-plus-2-year-kicker

Good luck to you. I bet that your attorney can find a few more items to modify if he does his job.

Buddy Cotten Mineral Manager

Randy Lea Barnes Sr. said:

  1. (line 25) Lessee is hereby given the option to extend the primary term of this lease for an additional five (5) years from the expiration of the original primary term. This option may be exercised by Lessee at any time during the last year of the original primary term by paying to Lessor herein, or their heirs, successors or assigns, at the address written above, the sum of $0.00 per net acre. Lessee shall exercise such option by placing written notice of such action in the U.S. Mail, postage prepaid, to Lessor at the above address, or by delivery of such notice to Lessor, in either case, prior to the end of the primary term hereof or if operations are being conducted on such lease or lands pooled therewith at the expiration of the primary term in such manner as to maintain this lease in force, within thirty (30) days after the completion of a dry hole resulting from such operations. Any such written notice shall include Lessee’s check payable to Lessor. Should this option be exercised as herein provided, it shall be considered for all purposes as though this lease originally provided for a primary term of ten (10) years.

Buddy Cotten said:

Dear Mr. Barnes,

Could you upload the lease to which you are referring? I need an educational experience on this clause. If it is the clause that essentially reads: “This lease shall remain in force and effect for a period of XX years from the date hereof and for as long thereafter as oil and gas, or either of them are produced in paying quantities,” then don’t upload the lease. That is the way almost all leases are written. But I am dying to see a lease that provides for a company to come in after a time and not pay royalties on production.

Best,

Buddy Cotten Mineral Manager

Randy Lea Barnes Sr. said:

Actually under the Oil & Gas agreements there is a clause that covers the first years of the contract, then another clause that allows them to come back after the original agreed time is over and drill for free without paying royalties. Basically this means in the first part they can cap come back after the contract is over and drill, which gives them lock on your minerals and you can do nothing about it. Statoil, whose parent company is out of Connecticut, controls that part. These clauses are standard in Oil & Gas lease agreements, but there is a way to fight it. But if you have already signed your lease and the deadline is passed to pull out of the agreement, you are stuck. My family has a lot of land going back to early 1800s, and the Oil & Gas companies are trying to get it for free. My family mineral rights cover Tyler, Doddridge, Wetzel, under the Anderson, Parker, Underwood, Swiger, Pratt, Cains.

17

Randy, what exactly has your oil & gas attorney told you not to sign? The clause you entered above is a standard “option-to-extend” clause, and whoever signed the lease covering these minerals agreed that the oil company would be granted the option to extend the primary term of the lease, keeping all of the terms contained in the lease, including the royalty rate and manner of payment. This clause cannot be accepted or rejected by the Lessor because the Lessor already granted permission to the oil company to extend the lease if the oil company wants to do that. So there is nothing for you to sign except to endorse the back of the check and deposit it. (I assume you put “$0.00” as the amount in the clause above, so we wouldn’t see the actual amount stated in the clause, for privacy reasons—good idea). If you fail to endorse and deposit the check, the lease has still been legally extended for an additional five years, because the manner of payment described is “tendering” and still binds the Lessor to an extended primary term. Buddy, help me out? Am I missing something here?

18

Out of 115 heirs only 10 have signed.

19

Dear Ms. Marsha,

Here is what we do not know. First, was this horrible lease executed by Mr. Barnes as written? If the option bonus is truly $0.00, then in my opinion, only a fool would execute such a lease. I have already blogged on the general folly of having an “Option to Extend clause.” No matter how much you put lipstick on a pig, it is still a pig. A 5 year lease with an option to extend for another 5 years, is a 10 year rental lease with one rental being due.

As to your other comments, I can only offer what my Dad used to say about such people and their thoughts.

“My mind is made up. Don’t try to confuse me with the facts.”

Best,

20

These are the issues with this lease

As in a previous email from 2014 concerning the wording of the lease and my Oil & Gas Attorney’s observations of Statoil Lease agreements. The lease is exactly as he stated it would be. It’s a win for Statoil and not for the Mineral Rights Heirs.

Line 9 of lease- “Lessee shall have the right to use, free of royalty or any charge, gas, oil and water from the premises for drilling operations on the premises.”

“It is in my opinion, and I do believe the rest of the family agree that Statoil should have to pay for this use.”

In our previous conversation your office stated that Statoil wants the gas only, no oil, nor was there any mention about using the underground water. By taking the water out of the land you are diminishing the property user right to his water and could run his water wells low. Also would cause a chemical reaction for water redistribution back into the underground system that will be unusable for drink or growing crops.

Line 10 of lease- covers the area and coverage for protection but there is no mention for the protection of the grave sites that are on the property or excess point for family members to visit. Also since this area is part of the Muddy Creek massacre and civil war historical artifacts will be found and I see no protection or a permit filing for inadvertent historical findings from Statoil to the State of West Virginia. Even though the present land owner owns top land rights they do not have ownership of the mineral rights or inadvertent historical finds 4 feet below top ground surface.

Line 11 of lease - concerns the pooling of an additional 600 acres from adjoining land. So by this Statoil will be doing fracking for directional drilling on land that was owned by Thomas Anderson’s Father. My question is since Thomas Anderson is his son is their not also lineal descendant mineral heir rights here also?

Line 25 of Lease- concerns the five year original contract lease agreement and then an additional 5 year attached with no payment of royalties to the Heirs.

"I discussed this in the email in 2014 that on the issues of this clause. As I stated from my attorney’s findings Statoil can go in drill and cap, come back after the five year period and drill for free without royalty payments. This part of your lease will not pass agreement with my family.

In closing I do believe if this lease was reworked that a favorable outcome would be forthcoming. What you’re asking in line 25 is no different than me putting a missile silo in without authorization on land that I have leased for exploration purposes. Line 25 also allows your company to not drill on the land until after the original 5 year period is diminished. At which gives you freedom to do what you want at no cost or payouts to the heirs.