Sec. 34 9N 6W

#1

We own mineral rights in Sec. 34, 9N 6W in Grady County. Our lease expired in Dec. 2018. TPR spud a well in Sec. 35 9N 6W in Nov. 2018 with intent to drill into ours. We have had offers from 3 companies to lease but then when I talk to them again they say that we are “Held by Production” & they can’t lease us. Can someone explain this to me? Can they just hold our lease & not lease us again? They have not completed the well in 35, it’s called “Ragsdale”. Another person who has minerals in Sec. 34 9N 6W seems to think we can still lease to another company.

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#2

Janna:

The Ragsdale #1-34H well was spud 11/8/2018. The surface location is in SW/4 of Section 35. Until that well is plugged or abandoned, your lease is held by continuing operations. That is a very vague term but it is what the operator will claim. TPR has been acquired by Paloma Resources so it may take a little time for Paloma to bring the well to production.

Hope this helps.

Todd M. Baker

#3

Is there a chance for this owner to claim the lateral had not crossed into her section before the lease expired, so drilling operation could only hold Sec. 35?

#4

Todd, That term “HBP” is such a confusing concept for us mere mortals out here. It seems to suggest that if operator A has an active well anywhere in an designated unit in which I own minerals then operator B is free to come along and lease other ‘open’ mineral owners in the same unit and drill down and produce from a different source of supply of my minerals of which I own and not pay me for those minerals simply because operator A ‘holds because of continuing operations’. It doesn’t seem any different that if I was a shared surface owner and I leased to a logging company to harvest timber off a parcel of my land and another company comes along and gets to harvest another parcel and not be required to pay me for my share of that parcel. I’m sure the laws governing oil and gas production are quite different than timber but the concept seems to be the same.

I think I understand that I can’t be ‘re-leased’ by operator B but that doesn’t mean operator B gets to confiscate our minerals. I think it means that I can’t sign a new separate lease with operator B with better terms and a bonus but I would still be paid for my minerals but based on operator A’s terms.
Is this correct?

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#5

If Operator A has an active well, you should be getting paid. If Operator B drills a new, deeper well, you’ll start getting paid 6-12 months after its completed by Operator B.

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#6

Thank all of you for your responses to my question. The Ragsdale well in Sec. 35 isn’t producing, they just spud it. So Paloma can hold us by production without leasing ours? The other person who has minerals in the same Sec. said he had an offer for $5100 from Red River & thinks he can lease.

#7

Your previous lease was probably for a term of three years, unless it becomes producing or is in the process of drilling. So I believe your issue is that Paloma started drilling before your lease expired. Therefor the old lease is extended by the production language. However, some might argue that drilling hadn’t started in your section, therefor it cant apply. Some will argue since Paloma filed a multi-unit application that joined the two sections that drilling had started.

#8

Janna- There is no Ragsdale well in Section 35. The governing rule is where does the wellbore first penetrate the desired zone. In this case, even though the surface location is in Section 35, the wellbore never penetrates the target zone until it is in Section 34. So your minerals are subject to that wellbore.

Todd