Signing bonus withdrawal

Last week, my siblings and I received paperwork giving us the option for signing bonus amounts for a well to be drilled for Section 2-T7N-R8W and Section 35-T8N-R8W by Rebellion Energy. We all signed them and sent them back. Today we received calls from a Rebellion rep who said that it was all a mistake since they discovered Limerock Resources, who still has the rights to an existing well that is still active on the same property from which we are still receiving royalty payments prevents them from having to pay us bonus amounts upfront.

Their proposed well is obviously much deeper than the existing one. Is it possible that they did not have prior knowledge of Limerock's existing involvement or do we have any recourse in this matter?


The answer likely depends on the exact terms of your (previous) lease, so you need to take a careful look at it. The experienced mineral owners will always include an "Exhibit A" (appended to and incorporated into the lease), which modifies the terms of the standard lease to make it more equitable for the mineral owner. One of the (several) clauses in such an Exhibit A will likely be a DEPTH CLAUSE worded somewhat like mine, below.

DEPTH CLAUSE: Notwithstanding anything to the contrary in said Oil and Gas Lease, at the end of the primary term of this Lease, this Lease shall expire as to all formations, horizons or zones that lie below 100 feet below the stratigraphic equivalent of the base of the deepest formation found to be capable of producing in any test well on the lands herein described or lands being part of the same drilling and spacing unit therewith. However, if Lessee is engaged in operations which would otherwise extend the term of this Lease, the Lessee has the right to complete said operations before this provision is effective, and such operations shall be considered to have been completed prior to the end of said primary term.

If you have a clause like this in the original lease, then you're likely completely free to lease again (below the indicated depth) and receive lease bonuses.

Please note also that if the property is, indeed, held by production, that doesn't just free the new lessee from paying bonuses, it invalidates the new lease, so don't let them claim that you're bound by the new lease but they're not bound to pay the bonus. In this event, only the terms of the old lease apply. Hope it was well negotiated.

Everyone --- please note this IS why you don't want to sign the lease that the landman provides!!!!! The procedure most often used;is to attach an Exhibit with many clauses which are in favor of the Mineral owner..... In this case its the DEPTH CLAUSE which is the difference maker --- hopefully the limits of the lease are limited by DEPTH as well as surface NMA.

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