In a document showing transfer of operators, listed wells were marked with either: producing, shutin or plugged. What does shutin mean? In Beckham County Oklahoma, Cat Creek was classified as shutin in 2016 and I have not been able to find anything since that record of transfer for that well. No royalties coming in.
Wells are shut in for a variety of reasons. Could be no pipeline available for gas, mechanical issues or the well has reached its economic limit and has been mechanically shut in until it can be plugged and abandoned.
I see that well with last production in 2012. It produced over 2.4 BCF of gas. At this point, it is probably been “done” for over a decade.
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So when wells stop producing for whatever reason, the mineral rights owners are not notified, correct?
The operators have no obligation to notify, Up to the mineral owners to keep track of the wells on their properties through the OTC site and the OCC site.
Leases I’ve seen have a “Shut In” clause - most often $1 per acre.
Ann Whitchurch
Should there be a time limit in the shut-in clause? If there is no time limit, can the shut-in prevent you from re-leasing the rights?
As with other things, the clauses can vary. The only shut ins I’ve ever received were on gas wells and I think they were shut in due to low gas prices. The wells were back online after a while.
Ann Whitchurch
We need to define terms. Technically, a well is shut-in when there is no market or an adequate market for the gas. If that is truly the situation, then the well can be shut in for years. But sometimes an operator will describe a well as shut-in when it is really temporarily abandoned. They haven’t gotten around to plugging it yet. The key to the shut-in is how long has it been shut-in, what is the reason for the shut-in and more specifically, if one were to produce the well on the property, would it make more money than the cost of operations, ie, producing in paying quantities.
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If a well is “shut in”, does that mean the lease doesn’t expire? Can the lessee prevent the owner from being able to lease again? (Pardon me if this is a stupid question)
If one is writing a new lease, it is very smart to limit the shut in time to one or two years “cumulative”, not “consecutive” and ask for more than $1/ac. An old shut in clause with no time limit that keeps paying the shut in fee every year can hold you for years and years. It can prevent leasing.
Tim, has there been much success in breaking those clauses? We brought up the question at the OK caucus at the NARO national convention this year to see if we might get some legislative relief for those really old ones that allow companies to just sit on them with no plans for a pipeline.
Thank you Martha! A lease that we are being offered states in the shut in clause that the lease may not be maintained in force for any one “continuous period of time longer than two consecutive years” it also states “lease is amended where lessor is paid $10.00 per year net royalty acre shut-in payment.” Under what circumstances would the wording “cumulative” be an advantage over “consecutive”?
Consecutive means two years in a row. This allows operator to reopen and produce well for a few months and then shut it back in for 2 more years, on and on, as a means of keeping your lease. Cumulative means 2 years in total over time. So shut-in for 2 years at one time or intermittent such as shut-in one year and then produce for a while and then shut in for one more year. Then operator has to produce with no more shut-in ever or give up your lease.
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It not a stupid question.
The answer depends on whether if the product was capable of being sold, would the operator be able to pay his monthly operating costs after payment of royalties.
The answer depends on whether the well is at the end of its life and has basically died, or whether the operator is unable to sell gas because of pipeline problems, no purchaser in the area or no purchaser wants to buy their gas at this time.
Thank you TennisDaze for your very clear and helpful answer! Is there any significance in the “$10.00 shut-in royalty payment” amending the lease?
You need to make sure the statement is $10/ac, as that is 10 times more than $1/ac. If they only say a $10 shut in, then you might only get $10 total per year. Words matter!
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Thank you! Yes, the clause reads “ Lease is amended where Lesser is paid $10.00 per year per net royalty acre shut-in payment.”
This is the 3rd offer we are negotiating, the wording is always different and to a “novice” and aging senior, it can be quite confusing! I am so thankful to you and everyone else on this site who has so patiently explained tackling this maze!
More normal clause is per net acre. Is the term “net royalty acre” defined in the lease?
Yes, that is how it reads.
Do you mean “per net acre” or “per net royalty acre”? If it is per net royalty acre then that term must be defined somewhere in the lease. I hope you are working with an oil and gas attorney who practices in the state where your minerals are located. Comments here are general and everything depends on the lease language in its entirety.
It reads “per net royalty acre”. I will be working with an attorney once we have decided which offer to go with. Right now we are still negotiating. Once a decision is made, we will have an attorney look it over.