What is "Held by Production" - VIDEO

Hi Y’all! I have a new video for y’all that covers another frequently asked question!

As a young production engineer I used to ask my landman every other week what held the lease and how I knew if a we (as an operator at the time) still had rights to produce or develop the lease. It can be a super confusing concept for someone new to the idea, and these things are so much easier to explain in video form rather than by reading articles or forum posts.

Enjoy!

(Also, feel free to ask follow-up questions here or as a youtube comment, and the whole “like and subscribe” thing really is the best way to help videos on youtube if you like it :slight_smile: )

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Tracy,

You are amazing. Thank you for sharing your knowledge!

Lisa

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That’s so sweet! Thank you!

Tracy:

Great video. Often new mineral owners believe that they should be able to re-negotiate an old lease. Maybe the lease was signed in 1930. But when a lease is held be production the operator can and will ignore such requests. Also, your video describes what I call lease squatting. This is where an operator generates the minimal amount to hold the lease. Why would a company lease squat? A company without resources to rework a well may hope to sell out to a company that does. But if it stops minimal production, then the lease (and the operator’s interest) expires.

This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.

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Thanks, @Richard_Winblad! For sure. I would estimate almost every operator is performing some type of “lease squatting” somewhere. Losing an old lease with a low royalty rates (or any lease in an area with a high lease bonus) is never ideal if simply producing a small amount every now and then can hold on to it until the opportunity arises (or prices rise) to drill something new or recomplete an uphole zone. There’s always far too much work to do for the money and people assigned to do it with so many aging wells.

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Those really old leases did not have the “paying in economic quantities” or some version of that language, so lots of “barely hanging in there” wells are being used to keep wells online in hopes of bigger payouts for the operators.

In addition, old leases with poor shut in clauses that had no time limits are also a problem for the mineral owners. They shut in a well and pay $1/ac for year for years and years in hopes of the other horizons getting drilled.

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