How long can a well be abandoned and still hold the lease?
Chris:
You need to refer to the wording in your lease. The answer to your question should be found there.
Looks like 90 days, the well has shown no production since November and is listed as temporarily abandoned on the DNRC well production page, I assume the State of MT approved this. It was a decent well until a submersible pump was put in, then mostly trouble and salt water. Thanks for the reply
Chris:
You didn't mention any other wells on the lease but if another well or wells, which are in in active status, exits on the lease, this would change the whole picture.
One Ratcliffe well on a 640 spacing, started SEP 2006. Have had work over rigs on it before but can’t seem to keep it producing for more than a few days.
Chris:
You need to check on this in regards to your original question. If this is a separate lease, you may be ok.
Thanks Charles, we would like to see it plugged or developed in a different zone, but it is holding a section for the oil company.
Chris:
Where are your minerals located in Montana? I have mineral acreages in both Sheridan and Roosevelt Counties. All acreages currently leased but will begin to expire next April.
Roosevelt County: Townships 29 & 30 Range 58E, half is held by 3 wells , the rest is leased for another 2 years. Most of the drilling activity seems to be to the south in 27 & 28.
Chris:
I have mineral rights in Roosevelt County......T30N;R58E;Sections 1&12; no active wells on the areas. Also have mineral rights in T30N;R59E;Sections 6&7; no active wells on these areas. All of my active leases are in Williams County, ND. Hopefully, MT will eventually become more active but I have leased these areas since 2004 and never had difficulty in leasing.
I speak from my experience in Texas; you have to read the lease. There may be provisions for a shut in royalty. Also, when the price of the product is real low, they may not use your well. It seems sometimes they use wells just enough to avoid the Railroad Commission's "Pump or plug" policy.
Also, it is to your advantage to have the product come out of the ground when the price is higher.
I agree that is to the mineral owners advantage that the minerals be produced and sold when prices are higher, after all, there is a finite amount of them, but it is not in the mineral owners best interest that their minerals be HBP because of mimimal payments from a shut in clause for an extended period of time, more than a few years. The lease is the written expression of your desire to produce your minerals and the lessees statement that they want to produce your minerals. If your minerals are going to stay in the ground until they appreciate, why would you the mineral owner/lessor, lease them so thet the great majority of the appreciation goes to the lessee? Why would the lessor convey his title to the minerals for the pitiful bonus if he did not expect to get more from the production of the minerals?
I think it should be assumed that the mineral owner lessor wants their minerals to be produced and the mineral owner/lessor had better have a shut in clause with a maximum cumulative time frame of shut in, that would compel the lessee to produce or the lease expires on it's own terms. I would say that this does not have to be the end of the lease, but it would mean that the lessee would have to produce or come back to the table. I know the lessee/operator, does not want to come back to the table, they made the original deal when they had the upper hand but it is not unreasonable for the mineral owner/lessor to bargain for more to extend a lease that would have expired by it's own terms.
An operator who need not produce to maintain a lease and can extend your lease for $1 per acre per year indefinitely, does not have to produce to make money. In that situation the lessee/operator can assign their right to produce your minerals to someone else and make money off the deal, while you the mineral owner/lessor, did not make anything. The new holder of the right to produce your minerals may not produce them either. I would not find that pleasing and I don't think you would either. Make sure there is a cumulative limit to the time that your well can be shut in while the lease is maintained, as this should at least bring the lessee back to the table where you could negotiate a higher shut in payment and or a higher royalty for greater delay in producing your minerals than were allowed for in the original terms of the lease. If the lessee had to pay you for the delay in producing the minerals in the original lease, it would only be reasonable that they should have to pay in similar amounts to continue to delay production. I think the lessee would not like but would pay delay rentals equal to the lease for your shut in minerals but they would get a cold chill from a cumulative shut in limit, but it needs to be there because it's the only thing that gives your lease teeth, to make the lessee produce because even if you leased for a 30% royalty, 30% of nothing is still nothing.
There is a lot of good information in your post, but in the end, it comes down to what was written in the lease. That is why it is so important to have it crafted by a competent oil and gas attorney.
I have learned a lot about this oil and gas business the hard way.
And a lot of what one does is dictated by their personal circumstances. Some people really need that royalty income, others don't. They can afford to go unleased and wait until the market improves and we find ourselves in a less hostile environment tax wise.
In the case of the original poster, it appears that the die was cast when they signed the lease. Again, it comes back to the lease.
You have a good point but if you need the lease bonus so bad but not gaining the royalty for a decade does not matter, someone might be better off seeking a sale, instead of a lease for much less. Possibly only selling as much as they need so that what they retained could become the future upside instead of a lease that doesn't produce in the short or medium term.
There is usually more options that just lease but the lessee does not want you to think there is because the lease is generally the most profitable per dollar spent when you factor in dry holes, low producing wells that tie up capital for long periods of time. If leasing were not the most profitable way they had found in the last hundred plus years, they would do something different.