I received a lease with what appears to be mysterious shut-in terms. It reads:
"Where gas from a well producing gas is not sold or used, and no other products of gas from said well are being sold or used, Lessee may pay or tender, as royalty, at the end of each yearly period of this lease during which such gas or any products thereof are not sold or used, the sum of Fifty Dollars ($50.00) per well, and while said royalty is so paid or tendered, it shall be considered that gas is being produced with the meaning of Paragraph 2 above."
And here's Paragraph 2:
"It is agreed that this lease shall remain in full force and effect for a primary term of THREE (3) years from this date (herein called primary term), and as long thereafter as oil, gas or the products of oil or gas are produced from said leased premises, or drilling operations are continued as hereinafter provided."
Can I conclude that $50.00 per year will continue my lease indefinitely so long as gas is not sold or used? Will a shut-in clause that puts a time limit prevent this?
Thanks--Amy
Amy, you are correct. That language means as long as they pay $50 per year after they drill and shut in a well your lease will remain in force. If you carefully read the rest of your lease you will probably find language that the lease will not terminate because they did not pay the shut in royalty payment on time, probably that you must give them notice in writing and give them time to correct the error. Yes, as you say, language that the well can't be shut in for more than 2 years cumulative time or the lease terminates, would solve the problem. Have your lawyer insert the language not the lessee. If the lessee provides the language they could use something vague and open to interpretation and your only recourse would be to sue them out of your own pocket. You don't want to leave the fox guarding the henhouse.
In any lease I include horizontal and vertical depth clauses, no deductions, and I don't warrant the title. My previous shut-in clause read:
"After the end of the primary term, this lease may not be maintained in force solely by reason of the shut-in payments, as provided for in this lease, for any one shut-in period of more than two (2) consecutive years."
This current lease doesn't offer an extension beyond the Primary term of three years, unless, oil or gas is discovered and/or they're reworking or in the process of drilling, etc. And then the 60 day bit kicks in which extends the lease as long as they're diligently at work or in the process of drilling. That 60 day event seems like it can renew itself indefinitely with just a truck moving equipment around the site periodically.
The lease starts with an 80 acre area and the pooling clause limits oil wells to 80 acres, however, gas is expanded to 640 acres. Any gas production in this larger added pooled area can implement and fulfill the terms needed to keep the lease alive in the original 80 acres but at a reduced royalty.
The key term "producing well" seems to secure the lease though it came from the pooled area.
I get tongue tied just trying to explain this! Just like deciphering the lease itself.
Amy: I typically revise leases to state that they must be drilling (which is actual drilling into the ground) or diligently working toward getting back to production. If the definitions are limited, moving a truck or other such preliminary things (such as obtaining permits, etc.) will not hold the lease over the primary term.
Amy, if your shut in clause was a direct quote, they only need tp produce your well for 1 day every 2 years to hold your lease forever, It should read that the well can be shut in for no more than a cumulative of two years total or the lease terminates.
It's fair, all they have to do is produce your minerals which is what they said rhey want to do, to save your lease. 2 years cumulative shut in is fair because it's 2 years in addition to the primary term of the lease so they probably had 5 or more years to drill your well and set up marketing. If the lessee waited until the last day of your lease to drill, it's their fault for wasting time, no matter how much they might cry or moan.
Amy, the shut in clause you quoted sounds like it was written by the lessee. The reason it sounds like it was written by the lessee is because it is worthless, because they only have to open the valve one day every two years.
Amy Falls said:
In any lease I include horizontal and vertical depth clauses, no deductions, and I don't warrant the title. My previous shut-in clause read:
"After the end of the primary term, this lease may not be maintained in force solely by reason of the shut-in payments, as provided for in this lease, for any one shut-in period of more than two (2) consecutive years."
This current lease doesn't offer an extension beyond the Primary term of three years, unless, oil or gas is discovered and/or they're reworking or in the process of drilling, etc. And then the 60 day bit kicks in which extends the lease as long as they're diligently at work or in the process of drilling. That 60 day event seems like it can renew itself indefinitely with just a truck moving equipment around the site periodically.
The lease starts with an 80 acre area and the pooling clause limits oil wells to 80 acres, however, gas is expanded to 640 acres. Any gas production in this larger added pooled area can implement and fulfill the terms needed to keep the lease alive in the original 80 acres but at a reduced royalty.
The key term "producing well" seems to secure the lease though it came from the pooled area.
I get tongue tied just trying to explain this! Just like deciphering the lease itself.
I understand precisely what you mean--"consecutive" is the wrong word and invalidates the purpose of the shut-in clause. When I initially negotiate a lease and indicate the need for adding clauses I have often been told by the lessee "Oh, of course, I'll put that in for you" only to discover some circuitous language that doesn't affect anything.
Thanks rw--Amy
r w kennedy said:
Amy, if your shut in clause was a direct quote, they only need tp produce your well for 1 day every 2 years to hold your lease forever, It should read that the well can be shut in for no more than a cumulative of two years total or the lease terminates.
It's fair, all they have to do is produce your minerals which is what they said rhey want to do, to save your lease. 2 years cumulative shut in is fair because it's 2 years in addition to the primary term of the lease so they probably had 5 or more years to drill your well and set up marketing. If the lessee waited until the last day of your lease to drill, it's their fault for wasting time, no matter how much they might cry or moan.
Amy, the shut in clause you quoted sounds like it was written by the lessee. The reason it sounds like it was written by the lessee is because it is worthless, because they only have to open the valve one day every two years.
Amy Falls said:
In any lease I include horizontal and vertical depth clauses, no deductions, and I don't warrant the title. My previous shut-in clause read:
"After the end of the primary term, this lease may not be maintained in force solely by reason of the shut-in payments, as provided for in this lease, for any one shut-in period of more than two (2) consecutive years."
This current lease doesn't offer an extension beyond the Primary term of three years, unless, oil or gas is discovered and/or they're reworking or in the process of drilling, etc. And then the 60 day bit kicks in which extends the lease as long as they're diligently at work or in the process of drilling. That 60 day event seems like it can renew itself indefinitely with just a truck moving equipment around the site periodically.
The lease starts with an 80 acre area and the pooling clause limits oil wells to 80 acres, however, gas is expanded to 640 acres. Any gas production in this larger added pooled area can implement and fulfill the terms needed to keep the lease alive in the original 80 acres but at a reduced royalty.
The key term "producing well" seems to secure the lease though it came from the pooled area.
I get tongue tied just trying to explain this! Just like deciphering the lease itself.
Thanks for the advice Jean. Is there a special clause or statement that befits adding to "Exhibit A" with the other clauses (depth, warranty, etc)?
Jean M. Pledger said:
Amy: I typically revise leases to state that they must be drilling (which is actual drilling into the ground) or diligently working toward getting back to production. If the definitions are limited, moving a truck or other such preliminary things (such as obtaining permits, etc.) will not hold the lease over the primary term.
Amy, as long as you are onto them and their sly little tricks. That one was easy, practically shouted at me, sometimes they can be very subtle, especially with a clause that looks good, but is modified by language in a later paragraph. Keep your eyes open and good luck.
I just looked up the lease and some emails with the landman and discovered that the word "consecutive" was indeed added to my original request which I'm copying and pasting directly from the email:
SHUT-IN ROYALTY: After the end of the primary term, this lease may not be maintained in force solely by reason of the shut-in royalty payments, as provided for in this lease, for any one shut-in period of more than two (2) years.
I sent a notarized copy of the original lease and promised to release the original when I received payment and not a bank draft. Haven't heard back in over two weeks.
I'll be more careful with the subtle word usage with future leases.
Thanks--Amy
r w kennedy said:
Amy, if your shut in clause was a direct quote, they only need tp produce your well for 1 day every 2 years to hold your lease forever, It should read that the well can be shut in for no more than a cumulative of two years total or the lease terminates.
It's fair, all they have to do is produce your minerals which is what they said rhey want to do, to save your lease. 2 years cumulative shut in is fair because it's 2 years in addition to the primary term of the lease so they probably had 5 or more years to drill your well and set up marketing. If the lessee waited until the last day of your lease to drill, it's their fault for wasting time, no matter how much they might cry or moan.
Amy, the shut in clause you quoted sounds like it was written by the lessee. The reason it sounds like it was written by the lessee is because it is worthless, because they only have to open the valve one day every two years.
Amy Falls said:
In any lease I include horizontal and vertical depth clauses, no deductions, and I don't warrant the title. My previous shut-in clause read:
"After the end of the primary term, this lease may not be maintained in force solely by reason of the shut-in payments, as provided for in this lease, for any one shut-in period of more than two (2) consecutive years."
This current lease doesn't offer an extension beyond the Primary term of three years, unless, oil or gas is discovered and/or they're reworking or in the process of drilling, etc. And then the 60 day bit kicks in which extends the lease as long as they're diligently at work or in the process of drilling. That 60 day event seems like it can renew itself indefinitely with just a truck moving equipment around the site periodically.
The lease starts with an 80 acre area and the pooling clause limits oil wells to 80 acres, however, gas is expanded to 640 acres. Any gas production in this larger added pooled area can implement and fulfill the terms needed to keep the lease alive in the original 80 acres but at a reduced royalty.
The key term "producing well" seems to secure the lease though it came from the pooled area.
I get tongue tied just trying to explain this! Just like deciphering the lease itself.
Yes, put a time limit to the shut-in period.
Amy,
If you have not received the check yet, unless you signed something giving them x days to pay you after you tender a signed lease, you may be able to send a rescission notice before they countersign the lease and make it a binding contract.
Wade,
I received bonus check today which I have not cashed. Now I can send them the original lease, not the notarized copy as agreed. However, the original lease contains the pernicious word "consecutive" in the shut-in clause. Can I strike out "consecutive" and insert "cumulative" on the original, initial it, and send it back or should I call them back indicating my late discovery of the insertion differed from my earlier email agreement with the landman and request permission for the alteration?
Thanks--Amy
Wade Caldwell said:
Amy,
If you have not received the check yet, unless you signed something giving them x days to pay you after you tender a signed lease, you may be able to send a rescission notice before they countersign the lease and make it a binding contract.
Amy,
Send me a Private Message at your convenience.