Hello. I’m in the process of negotiating with CHK on a .289 acre lot in Cleburne, Texas that my Father-in-Law bought as a HUD repo. A well has been permitted but not drilled. We’ve agreed so far on a depth clause, indemnity of the lessor, no warranty of title by the lessor, 2500/25% royalty, 3/2 year. Where we are having a hang up is this: They have a perpetual subterranean easement that would not terminate with the lease. They came back and re-worded it to state only for O&G and only while under lease. It doesn’t state under lease with whom so I’m going to assume with any company. To me, that would give them a great deal of control in the future if any other prospects for exploration develop in the coming years once the Barnett plays out. The reason the RedSky landman gave me for wanting the easement was “because they need to protect themselves legally in the future”, and “in case they drill a dry hole”, etc. Well, I don’t see any legal issues for “needing” the easement. I told him that the lease provides for an easement for the duration of production, so why must it be perpetual? If they drilled a dry hole, which is very unlikely, the lease provides a 90 day period to re-work or commence anew. Any thoughts from anyone on this?
Joel
Are they wanting to run a pipeline under your property? Other than that, the rest of the terms are poor but comparable to what is being offered today.
Your basic assumptions also seem to be correct but you may want to invest in an O&G attorney given the fact that you’ll be stuck with whatever lease you sign. Remember, as the lessor, you have the right to demand your terms, too.
Thanks for your response. The bore is about 131’ outside of the property line. But they don’t need a perpetual easement for this or to bore under this property. The lease provides for that as long as production is in paying quantities. I just see in the years to come after the Barnett has played out them having some control over the minerals by virtue of having the never ending easement. We’re only dealing with .289 acres. After giving this more thought, I don’t think we are in a strong negotiating position. I just wanted to get some input regarding other’s experience with this type of easement. Thanks again.
Jim Colley said:
Joel
Are they wanting to run a pipeline under your property? Other than that, the rest of the terms are poor but comparable to what is being offered today.
Your basic assumptions also seem to be correct but you may want to invest in an O&G attorney given the fact that you’ll be stuck with whatever lease you sign. Remember, as the lessor, you have the right to demand your terms, too.
NOT LEGAL ADVICE
Dear Mr. King,
I have encountered this language before, and you are very astute to have noticed it in your lease language. The only reason I can think of that they want to make it “perpetual” is so that if your unit has a dry hole or the production plays out, then they can still transport product beneath your property to market from a neighboring drilling unit or even one much further away. It seems like they should pay for an easement. In fact, easements are usually separate legal instruments, with a separate payment. I think I know the going rate for a pipeline easement but won’t speculate because I am not up to date on that aspect.
Sincerely,
Philip Wynne