Surrendered Acreage

Oil and Gas Leasing Help
1

I received a lease offer for 40 NMA I own and read these terms:

“Lessee may at any time or times during or after the primary term hereof surrender this lease as to all or a portion of the lands covered herein by delivering to Lessor, or by filing for record a release or releases, and thereafter be relieved of all obligations accruing hereunder as to the acreage surrendered. The lease shall continue in force and effect as to all of the acreage not surrendered.”

It appears that the acreage can be parceled up in any manner whatsoever, Lessee keeps what he wants, releases what he does not want, and reduces Lessor’s royalty accordingly. Lessor could also be left with the remaining divided or fragmented parcels which might be less appealing to other Lessees, and more confusion with records at County Clerk.

Is it commonplace to surrender back acreage parts and what are the dangers in doing so?

Thanks all,

Amy

2

Amy, that is a cover your behind clause. Unless you have other clauses that require all of your acreage to be pooled, it’s probably meaningless. If you have a pugh clause, it’s probably meaningless.

It would be much to the operator’s advantage to hold non-producing acreage, rather than to release it. Even if the lessee/operator does not want to drill the acres that you are not being paid royalty for, someone might want to in the future so the lessee could make money assigning those non-producing acres to someone else. I don’t see them giving that up for no reason.

3

Thanks r w, This lease was lessee-generated so it didn’t contain a Pugh Clause (which I would have insisted upon being included) but the pooling paragraph follows:

  • “Lessee, at its option, is hereby given the right and power to voluntarily pool or combine the lands covered by this lease, or any portion thereof, as to all strata or any stratum or strata, for the production primarily of oil or primarily of gas with or without distillate, or either of them, with any other land, lease or leases adjacent thereto when in a Lessee’s judgment it is necessary or advisable to do so in order to properly develop and operate said premises, such pooling to be into units not exceeding eight (80) acres for an oil well, plus a tolerance of ten percent (10%), and not exceeding six hundred forty (640) acres for a gas well, plus a tolerance of ten percent (10%), except that larger units can be created to conform to any spacing or well unit pattern that may be prescribed by governmental authorities having jurisdiction. Lessee shall execute in writing and record in the County records an instrument identifying and describing the pooled acreage. The entire acreage so pooled into units shall be treated for all purposes, except the payment of royalties, as if it were included in this lease, and drilling or reworking operations thereon or production of oil or gas there from, or the completion thereon of a well as a shut-in gas well, shall be considered for all purposes, except the payment of royalties, as if such operation were on, or such production were from, or such completion was on the land covered by this lease, whether or not the well or wells be located on the premises covered by this lease. In lieu of royalties elsewhere herein specified, including shut-in gas royalties, Lessor shall receive from a unit so formed only such portion of the royalties stipulated herein as the amount of his acreage place in the unit or his royalty interest therein, bears to the total acreage so pooled.”
  • I don’t recall seeing the word “royalty” pop up so many times in the pooling section so it raised my suspicion.
  • On another note the shut-in clause follows:
  • “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) 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.”
  • 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.
  • Fifty bucks per well? How about an acreage-based shut-in royalty of $50 or $75?
  • How I wish there would be one, standardized, and equitable, lessee-friendly and lessor-friendly lease out there.
4

Amy, that pooling clause is common, and totally in the operator’s favor, the entire store. Shut in isn’t so bad if you only have one acre at $50 per well per year. I would rather see and think reasonable $25 per acre, per quarter, with a maximum of 2 years cumulative shut in allowed, to encourage the operator to produce and sell your minerals, because that’s what they said they wanted to do in the first place, isn’t it? Amy, it’s oil and gas, everyone wants to make a killing. If there were a reasonable lease proposed for standardization, it would not become popular because the lessees would not give up the opportunity of making the largest possible killing on every deal. They consider it their just due to be able to fleece any mineral owner who does not take the time to become informed or who can’t afford help or an attorney. Somewhat off topic. When I used to mention to a landman here that they aren’t supposed to be making unsolicited buy offers in groups or threads and they have a snappy retort, the feeling that they would like to ask “what’s it to you?” is almost palpable. It’s like it is their God given right, no matter that it may be in violation of the terms of service, and it’s practically irresistible to them when someone says “I’m confused, I have no idea where to start or what it is worth”. I’m not a mod here. I used to mention that they should not try to do business in the threads or on the comment wall, so they could brush up on the terms of service, delete their post and maybe do it the right way and possibly contribute. Now I just report them whenever I see them.

5

Amy,

If there is a producing well that holds the lease on certain acreage, this probably trumps the abandonment clause. In other words, they won’t abandon acreage that has a profitable to operate well on it. Where it comes in if part of your acreage gets pooled and part does not, they can later abandon the lease on the part outside the pool if there is no well on it.

There are better alternatives to this clause.

6

R.W.,

This is a different, yet to be signed or negotiated, lease other than the one needing “cumulative” in place of “consecutive.” I’m parsing through it to get a better idea of what needs to be addressed and changed. With the help of this forum and outside reading I gain a much better perspective on how to deal with a lopsided, lessee-favored lease. One lesson I’ve learned—don’t rush into signing a prepared, arrow-stickered, sign here, sign there, lease with a carrot draft check. Often, the longer one waits the better will other offers start coming in. As an example, for two years now I’m still receiving higher Logan offers every week or so. There is truly a feeding frenzy aspect to this business.

My appreciation and thanks to all—Amy

r w kennedy said:

Amy, that pooling clause is common, and totally in the operator’s favor, the entire store.

Shut in isn’t so bad if you only have one acre at $50 per well per year. I would rather see and think reasonable $25 per acre, per quarter, with a maximum of 2 years cumulative shut in allowed, to encourage the operator to produce and sell your minerals, because that’s what they said they wanted to do in the first place, isn’t it?

Amy, it’s oil and gas, everyone wants to make a killing. If there were a reasonable lease proposed for standardization, it would not become popular because the lessees would not give up the opportunity of making the largest possible killing on every deal. They consider it their just due to be able to fleece any mineral owner who does not take the time to become informed or who can’t afford help or an attorney.

Somewhat off topic. When I used to mention to a landman here that they aren’t supposed to be making unsolicited buy offers in groups or threads and they have a snappy retort, the feeling that they would like to ask “what’s it to you?” is almost palpable. It’s like it is their God-given right, no matter that it may be in violation of the terms of service, and it’s practically irresistible to them when someone says “I’m confused, I have no idea where to start or what it is worth.” I’m not a mod here. I used to mention that they should not try to do business in the threads or on the comment wall, so they could brush up on the terms of service, delete their post and maybe do it the right way and possibly contribute. Now I just report them whenever I see them.