I have a situation regarding an oil and gas lease in Texas and would like some opinions/feedback. I have a signed lease for 100 acres and it includes a clause that requires the oil company to use all 100 acres together in the event of a pooled unit. I researched online and discovered that recently this company has permitted a unit that only utilizes a fraction of those acres. After contacting the oil company, they informed me that they “planned to use” the remaining acreage in another well down the road. It seems to me that they are in breach of my contract. Would it be more beneficial for me to sue them and require them to include all of my acres together (they have already begun construction) or should I let it go and hope to be included in another well down the road? Do I have a case against them as far as breach of contract? Any insight would be appreciated.
It would probably be best if you provided the exact wording of the pooling clause.
Rachel:
Andrew is correct in that you need to provide more insight in regards to the exact wording in the lease.
Rachel,
Yes, we need the exact wording of the pooling clause. However, based on what you have provided a violation/breach has occurred.
-mark
Not be construed as legal advice. No attorney-client relationship is intended.
Rachel,
The clause in your lease you referred to is there for your protection against an operator holding large portions of your acreage without development obligations. It is most commonly used in Texas in my experience.
Since you know your are going to have some revenue from production, reinvest some of it and find an experienced oil and gas attorney living and practicing in the specific part of Texas where your lease is located. An hour with an attorney will give you great piece of mind. You will need the entire lease as the clause by itself is of little value to an attorney. He/She will need to know what remedies are afforded you by the lease document.
Hopefully, for you, an attorney will find it within your right to give notice of default to the operator and the operator will come back to your lawyer with a satisfactory remedy that may include a new lease on the remaining acreage with bonus or a release of the non unitized acreage after the primary term of the lease. Maybe some other solution like mandatory development of the remaining acreage. I doubt if either party wants to fund a lawsuit as neither party will win an economic victory.
Bottom line is that the operator may have messed up and potentially harmed you. Find out about your rights to recover. If your mineral rights are in the panhandle, contact me and I will give you some names of lawyers I have worked with in that area and the Oklahoma border area. Good luck and stick to your guns.
This is how the clause reads - “Notwithstanding anything to the contrary contained herein, it is further provided that should Lessee elect to pool or unitize any part of the herein leased premises, for oil, gas and/or gaseous substances, then in such event all of the acreage covered hereby shall be included in any such unit or units.”
This lease was signed only a few months ago. When we brought this to the attention of the oil company they simply told us that they planned to use the remaining acreage in the future. Obviously though that may never happen. But if they did end up drilling another well and I could be included in that one, would it be to my benefit? Is it worth the risk that a second well never gets grilled? Would it be a better idea to ask them for some money in exchange for an amendment of my lease?
Thanks for your feedback.
I see some ambiguity in the clause relating to the mandate the acreage "shall be included in any such unit or units." There is an argument that having the acreage in another unit would satisfy this requirement. If so, the million dollar question would be how long they have to get the rest of that acreage in a unit. My best, non-legal-advice guess would be that they have at least until the end of the primary term of your lease to pool the rest of your acreage. If the primary term ends and you still have acreage left out, then I would imagine your potential remedies would be worth considering.
Rachel, who wrote the pooling clause for you? I think that letting any lessee write the clause that is supposed to protect you is like letting the fox guard the henhouse.
Dear Ms. Marin,
I do not think that a breach has necessarily occurred as yet. The paperwork filed with the RRC has no title implications or significance. Only (essentially only) the pooling transaction in the lease applies.
Step one is to get a copy of the Unit Declaration which may or may not be filed yet.
Step two is to determine if the Unit Declaration complies with your lease terms.
Step three is to be VERY careful about ratifying a Unit Declaration. Many will contain words to the effect of "in the event this Unit Declaration is in conflict with the terms of any lease described herein, by execution of this Unit Declaration, Lessor agrees to modify the lease to the extent necessary to satisfy the intention of this document..." or words to that effect.
Step four is to be very careful to not get left out of a unit, unless you want to not be bound by the unit. There are valid reasons to want to be left out of a unit.
Would you consider a Unit declaration to be the same as division orders? If so, that has never been provided and I don’t expect to ever see it. I have another relative (same area) who’s land is producing (different oil company) and he has received four months of royalty payments and has yet to see any division orders. When we asked that oil company about it they told us they were “behind” on sending out the division orders. As for this well they have already begun construction on the pad site so I doubt they will be eager to go back and redraw the plat map to satisfy our lease terms. I’m just not sure if it would be in my best interest to try to force them to include all my acres in this first well or let it go and hope they drill another well that incorporates my remaining acres.
The unit declaration is a contract filed in county courthouse itemizing the tracts included in the unit and occasionally including a plat. If your lease gives pooling authority your signature isn’t required.
I think Andrew is correct about the ambiguity, although they may not be able to wait until the end of the primary term. It will depend on which unit, the one formed or the future one, as to,which has a well drilled on it first. Suggest sending them a letter demanding they let you know what their drilling schedule is, so you can make a determination if you want to push for it all to be included in the first unit or not.
Food for thought. I signed a lease with a company a few years ago and they would not agree to put all of my minerals in a pooled unit. However, they agreed to put about 1/2 of my leased premises in a pooled unit. When the operator drilled the first well on adjacent property, they asked me for a reduction in the amount of acres that they had to put in the well because the horizontal was not going to cross much of my tract (my property was not the drill site). I agreed, provided they would agree (in writing) to place all of my remaining mineral acreage in the next well. We signed a lease amendment to cover the new pooling agreement and I ended up getting all of my acreage in two pools. The first well in which I had less acres included didn't end up being a very good well. The second/last well, was a better producer and I had all of my remaining acreage in this pooled unit. When I originally leased, they would not agree to include all of my minerals in a pool, but in the end by working with them I got all of my minerals included in two producing units.
Hopefully you can work something out that will be in your best interest.
The "Pool All Acreage" clauses that I have crafted in the past would allow the Lessee to do so into more than one unit. From my interpretation of the wording provided herein, there has been no breach since the wording says "unit or units." So, I would let it go until the Primary Term and the Secondary Term, if any, expires. If the remaining acreage has not been put into a pooling unit by then, then you might have a cause of action. I don't see how you would benefit from an amendment of OGML excluding any part of the original Leased Premises from the Lessee's obligation to actually Pool All Acreage unless they cut you a very nice check, especially since, according to you, they have placed only a "fraction" of the Leased Premises into the first drilling unit.