What is “Top Leasing”? Need advice

Oil and Gas Leasing Help
#1

Hello everyone…

We’re hoping someone can give us advice and explain what this means. We don’t understand. We received a letter, contract and phone calls from a land man representing a company in Oklahoma City. This pertains to a portion of the mineral rights we own in McClain County that is currently leased with Charter Oak. The two wells on the acreage are either minimally producing or not at all in the past year. This letter pertains only to 60 acres of the 240 there.

Is this for real? Can it be done? What are the problems doing this? What questions should we be asking? Should we hire a lawyer? If so, who?

Here’s a copied portion of the letter sent to us.

“I am offering to Top Lease your interests in this section at $1,000.00 per acre and a 3/16ths royalty, with 10% of the bonus payment paid upfront. The other 90% would be payable once the Well is busted, typically ranging anywhere from ninety (90) days to twelve (12) months. A Top Lease is an Oil and Gas Lease that only takes effect when/if the current base lease expires, or is released. Anthem Resources has a team of attorneys who will pursue the operator and force them to either, (1) Increase production by drilling a new well (typically a horizontal well), which would result in higher royalty payments for you, or (2) Release the oil and gas leases due to the fact that the well(s) in this section are no longer producing in paying quantities. If the lease(s) are released, then it is very likely another operator drills a horizontal well instead. This “lease-busting” offer has many perks for you as a mineral owner, including a higher royalty, a new bonus payment, and you still own all of your mineral rights. Plus, Anthem Resources will take care of all the legal work at no cost to you. There is no downside for you, but there is potential for you to make a lot more money. The only thing required of you is to sign a top lease with Anthem Resources and collect your bonus payment, so we can take care of the rest.”

Thank you for reading this. We look forward to your insights and advice!

This forum has always been so helpful. Thanks again for being here!

#2

Top leasing is a time issue, not a depth one. It is a lease that would start the moment that an old lease ends. They typically only pay a small amount up front because they are trying to break an old lease and then pay the rest IF they are successful. Personally, not a fan of them. Others are.

If you have an old lease that has good clauses and you are fine with it, and you are patient, then there is no need to let it go. If you have a less favorable lease and the new lease is much better, then you might consider it. I am pretty sure that the new lease at first glance is not better in its clauses, but could be negotiated to be. Sometimes, one of those old 1/8th gross royalties leases are much better than a new 3/16ths lease that has post production charges snuck into it. Tthe PPC charges can really take away your royalties.

You have several choices. If the well is no longer producing in paying quantities, then you can demand that the operator either fix it or plug it and release you from your lease without any help from anyone else. You can just hang on and wait for that new horizontal well with your old lease. You can consider the top lease, but better get some help with the lease clauses and get a good Ex A so that it really is a better lease.

Here is an article that may help you understand some of the legal issues and why I won’t do the top lease.

An Overview of Recurring and Related Issues Involving Top Leasing.pdf (210.2 KB)

A lot of the acreage by Charter Oak was bought by BP and they are about to drill horizontal wells. If you want to share the section, township and range, I can look it up and see the pending activity around you and also see if that $1000 and 3/16ths is even close to what the pooling numbers are.

1 Like
#3

Hi Ms Barnes…

Thank you for responding.

My husband actually spoke with you awhile back about a different situation pertaining to our acreage in McClain County & Charter Oak. Check my previous posts.

Here’s the info you requested re what the land man is specifically addressing: N/2 SE/4 SE/4 & E/2 W/2 SE/4 of Section 07-06N-02W, McClain County - which is only 60 acres of the grand total.

Thank you again for any advice. You’re always been really generous with your knowledge and time. We really appreciate you and others on this forum.

#4

You may not have to worry about that section and a top lease. BP has a hearing for a location exception, so looks like they are planning on drilling the new well pretty soon. The problem with top leases is that you can get tangled up with the top leasing company and the operating company and get in a legal issue.

You might try contacting the operator and demanding a release of lease due to uneconomic conditions. The Smedley was listing 1 bbl oil per month. That is not economic. It is in an 80 acre spacing in the NE4. The Ladd Road SWD does have reclaimed oil, so it is probably economic. But it is in 10 ac spacing in the NE 4. Neither of those are in the SE4. What well are you getting paid on?

#5

I received a similar offer in Reeves County, could you please tell me your outcome, if they followed thru as promised, did they pay you in a reasonable amount of time?

#6

The first offer is always the lowest. I was offered $1000 for a lease per net and negotiated over twice that amount. Be very careful of the terminology and if there is any part of the lease you dont fully understand take the time to ask an attorney and look up sites with oil and gas terminology definitions. Some leases have Pugh Clauses that state the depth at which they can drill. Make sure that your has something that states whether or not they can sublease the minerals. I had a company that recently leased the top 3,000 to another company. Knowledge is power. Read Read Read and do not sign anything you dont fully understand. I would not allow their attorney or their legal team handle your part of the lease because they are hired by the company to work for the company not you.

#7

Hi Martha,

We recently spoke in a different thread. Thank you so much for your helpful information! How can we find out how much our current well is producing to possibly see if we can know whether it might be economic or not?

Thank you, Heather

#8

The answer depends upon what state you are in.

#9

We are in Oklahoma. Garfield County. Thompson 1 Well in 24N, 6W, Section 1.

#10

The well is in decline which is normal. Given that there is horizontal drilling all around you, I suspect someone is trying to put together an acreage position. I cannot comment as to “economic quantities”. NEON gas has been leasing in there with amendments to leases.

#11

Sorry it has taken me so long to reply, I don’t really understand what is taking so long,

#12

The OK tax commission lists the production. Gross Production