I have been contacted with an offer to top lease on a property that is currently leased, but production has been extremely low for the last couple of years. The offer is for a 10% down while they try to prove that the existing producer should have to re-lease the property before drilling any additional wells since their production in recent years has been "not commercially viable". Terms seem pretty attractive, but i am skeptical. Any advice or experiences much appreciated.
Great question! I don't have an answer but our lease has been in effect for 20-30 years and the production is very little every year and appears to be shut-in for long periods each year. I've considered contacting an attorney to see what we can do but I would be interest in having someone else do all the legwork for me. I'd be interested to hear who has offered you these services and how it turns out. Thanks!
I'd like to hear something on this also. I have interest in a section that has 1 minimal producing well that may sit idle at times. Also has 2 wells that are not plugged but haven't produced anything for a number of years. My interest is in 27-17-12. Do I need to contact a lawyer to discuss this? Thanks for bringing this subject up!
Mr. Schroeder:
What is your legal description and how many acres do you own? I have a friend/attorney that is doing just that in Blaine County. By "that" I mean getting operators to release old leases, outside of the existing wellbore(s) so mineral owners can lease their minerals.
If you desire, you can contact me via e-mail: to get his contact information.
Thanks,
Old wells are "held by production" HBP. When the operator has not diligently continued to drill, it often violates terms of the lease and an implied covenant to develop a property fully. These may be addressed in the lease but rarely do landowners pursue enforcement.
The company has some risk, but generally these depleted wells must surrender all but the producing zone to avoid litigation. Some may actually join with the 'aggressor' and do a joint operating agreement. Often even without the Pugh clauses, HBP does not work because the owner of leases may go to the CORP commission and argue that the zone producing isn't covered in their proposal (its a deeper zone, shallower, etc.) and they are allowed to have two sets of orders in the same unit. I am glad to see that, but I would want to see the terms of the lease offered to you to assure that they MUST continue to drill and develop and not to simply hold you with a single well.
If the terms are attractive... That is a great deal. They have no standing to pursue the release if they have no interest in the Section, which is why they need you or someone else in the section to execute a top lease. If you sign and they win, you win. If they lose, you lost nothing. What precisely are your concerns?
I would email or call Mahaffey & Gore. They have an attorney that holds classes for CPLs about the "Secondary Term/HBP" for oil and gas leases. Most of the cases you can view online about these, are represented by two attorneys at that firm, Travis Brown and/or Brady Smith. Travis is the one who taught a class on this at a luncheon I attended awhile back.