Three years ago this coming October, my siblings and myself signed a three year lease with the option for two more years. At that time we were not aware the option was not a good idea. Question is now, with three months before the option runs out how likely Vanna to execute the option? Aware that the lease was sold to Mitsui, but my understanding is Vanna is doing much of the legwork for Mitsui now. Thanks in advance.
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Very likely. Mitsui has only two wells permitted in Leon, both this year. One has not yet started drilling. For the other, if they have started drilling, they have yet to get to their target. Mitsui spent a lot of money for many acres of rights. They aren’t going to walk away after putting so little pipe in the ground. You will get your option bonus in October before they know whether their purchase will pay off.
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Thank you, apricate your input.
My question regarding this scenario is as follows…
The lease option become unnecessary at what point? In other words, the option is not needed from the moment they first draw the resource? Or from the time they have to have a division order in place? Or do they have to have sent the royalty payment prior to the renewal?
I do understand once they have produced, the lease is good for years until production stops, but at what point in the process does the renewal become unnecessary?
Do not have an answer, but would be curious to know as well. Hopefully someone will be able to give us an answer.
Notwithstanding anything added to an OGML, or without knowing the exact language of the lease extension language, operations (in regards to drilling, exploration) will make the lease option unnecessary.
Lessee, or its heirs, successors or assigns shall have the sole and exclusive right and option, at any time prior to the expiration of the original primary term hereof, to extend the primary term of this lease for an additional two (2) year term by the direct payment to Lessors, their heirs, successors or assigns, the sum of Seven Hundred Twenty Five Dollars per acre, at Lessors address listed above, the sum so agreed per net mineral acre for each net mineral acre then covered by this lease not then allocated to a well or included within a pooled unit for a producing oil well or for a producing or shut-in gas well in accordance with the terms of this lease. Should this option be exercised as herein provided, it shall be considered for all purposes as though this lease provided for a primary term of five (5) years. As evidence of the payment of the additional bonus and the extension of the primary term, Lessee may, contemporaneously with the payment of the additional bonus, execute and file of record in the county where the Leased Premises are located, a notice is the same form as that agreed for the lease itself, that it has elected to and has paid to Lessors the additional bonus, and the primary term of the lease has been so extended. It is provided that in the event Lessor receives a written offer that it is willing to take for said land during the Primary Term, that it shall provide a copy of said offer to Lessee who shall have a period of fifteen (15) days to match said offer and extend this Lease under the terms so offered.
That is the option language. Most leases provide that any operations during primary term, such as spudding the well, will extend the lease. Question as to acreage held by the well or formation and depths after drilling may or may not hold all of the lease or only part, after well is completed and/or producing, or if a dry hole than the number of days to spud a new well. Without reading the entire lease, it is not possible to answer your question. If there are no operations during primary term, then lessee my exercise its option to extend. Have you looked at permits that include all or a part or your minerals?
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If an company has a 3 year lease with a 2 year option and the 3 year primary term is about out. The company intends to drill a horizontal well under the lease, but the drill site is off the lease but the well is permitted already, then does the company have to pay the option under the horizontal well bore?
That’s a very good question, Mineral_Owner5. Since there is a permitted location (off lease) there is only one way your lease can be held beyond the primary term that I can think of and that’s by pooling. There’s a very good chance that your lease has been included in a recorded unit designation (pooling agreement/pooled unit designation, etc.) You can run the operator direct in the online deed records and peruse through the filings until you see a pooling document that carries the name of the permitted well. This information is subject to anything in the lease to the contrary. If you want more information, please ask. – Regards. (PS, I’ll do the heavy lifting for you. If you can tell me the operator (Comstock?) and the well name, I will attempt to find a pooling document for you and provide the volume and page so that you can see the list of leases for yourself.)
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Read Your Lease. Does it allow pooling? Does it prohibit allocation or sharing wells without your written consent? How does it define operations relative to primary term - moving dirt to build the well pad or drilling has actually been commenced? Does it require the rig be capable of drilling the entire well? Otherwise operator can bring in a spudder rig (only drills shallow depths). Once the well is spud, you will most likely not be able to argue about the primary term without being prepared to incur legal fees, including a lawsuit. If you do not understand the meaning of the lease terms that you signed, then do some research such as NARO or other presentations. Oil and gas law is complex and requires continuing learning - and not some AI or Chat summary. There are many sources and think of this as your evening entertainment.
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Thank you Phil and TD. This was just a question for future lease info. It seems that with the Deep Bossier/Haynesville Play that is horizontal, mineral owners need to have the proper lease. Until I learned better, an option term can cause problems. Leases I signed 40 year’s ago that had an option NEVER go paid. So if you don’t agree to an option these problems might not come up.
That is true. The option can cause problems, the biggest of which, in my opinion, is the bonus consideration. The bonus agreed to in the option of a lease executed 3 years prior might not be market value today. But, going back to the issue you asked about pertains to holding a lease beyond the primary term. If the lease is extended by operations, then the lease has entered the secondary term and there is no need for an option exercise. If a location is constructed with no cessation of operations as defined in the continuous operations clause of the lease and your lease is not drillsite, then, as I stated in my prior message, the only way your lease could be held is by pooling, which the operator has the right to do. Holding a lease by operations can get tricky for an operator and actually requires monitoring by the lessors. But, I see that your question was hypothetical, so I think your question really had more to do with holding a lease beyond the primary term than the operation of an option.
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