If a lease was signed back in the early 1960's, and provided for a 1/8 royalty, is there any chance of negotiating a new royalty that is more up-to-par with today's standards? The property is in West Texas, and a deep vertical gas well was drilled under said lease to around 16,000'. However, there is now horizontal permitting above the depths (11,000') where the gas well is producing. These new horizontal wells are also being permitted/drilled under the old 1960's lease terms.
I am not an attorney, and I have some of the older leases I inherited. My experience is that if the old lease still has economic production and it controlled all depths, any new wells will fall under it. If there is any chance of a Pugh-type clause that would have released any undeveloped strata, you might be successful in negotiating a new lease for the released depths. Good luck and I look forward to other posters with more knowledge
Thanks for the reply. You're right, and I figure there is nothing that can be done since pughs generally release deeper rights, not shallower rights. Hope someone says otherwise, though.
It depends on the terms of the lease and the facts and circumstances as to whether you can renegotiate the royalty provision. Does your lease cover 100% of the acreage under the well - whether 10% or 100% - or the well in a unit? Does your lease allow unrestricted pooling, pooling only with consent or is it silent on pooling? If there is a unit, did you or predecessor ratify for only gas or for oil and gas and for what specified depths? Many oil companies are filing permits for "allocation wells" in order to avoid pooling and to get around lease provisions. There is no settled law on the validity of allocation wells but is being used as a tool to essentially force pool minerals under older leases. As a mineral owner, you can see the harm of being forced to keep being paid at 1/8 royalty and to have costs deducted on top. How many net mineral acres do you own under the lease? You may need to have legal help to try and negotiate at least receiving the royalties at true market value (not at market value at the well which includes cost charges) and a no-deduction clause. It can be harder to get an increase in royalty, particularly if there are a lot of overriding royalties out there which already add up to 25%.
If the 16,000' well has been producing since the 1960s, I would say there is essentially zero chance of renegotiating your royalty (or any other lease provisions for that matter). Once your lease is held by production (HBP), you generally have no further leverage to renegotiate terms as long as the production remains in paying quantities. If the recent production is marginal, you may be able to get some new lease provisions added if you agree to ratify the old lease, but even in such a case it is unlikely that the lessee will raise your royalty.