What's proof of commencement of drilling?


#1

My family has a lease that’s due to expire on April 26. Casillas has filed an emergency application to drill and hearing is set for March 11. In the application, they indicate they have a rig ready to commence drilling. Is the date of “Well Spud Notification” filed with OCC, the evidence that I should watch for to verify that drilling did commence prior to lease expiration?


#2

You need to read the terms of your lease. Many of them have a clause that reads something like “preparations of the site” or similar language which means all they have to do is move some dirt around. Some say having a permit filed. I have a very specific paragraph in my lease that states the following which is much more accurate.

COMMENCEMENT OF WELL: Commencement of any well according to the term of this lease shall require that a drilling rig capable of drilling such well to the projected total depth for such well be on location and drilling on or before the expiration of the primary term or any other applicable time period hereunder and that the drilling of and other operations on such well be continued with due diligence in a reasonable, prudent manner until completion of such well in one or more formations. Construction of a well location or road or any other physical activity on the Leased Premises, or on any lands pooled, communitized or unitized therewith, without actual drilling operations being conducted with a drilling rig capable of drilling such well to the projected total depth of such well shall not be deemed commencement of a well under this lease.

The notification of well spud would be a true commencement under my language. Spud is when the drill bit starts turning.


#3

Here’s the commencement clause in my lease; Commencement of a well according to the terms of this lease will require that a drilling rig capable of drilling to total depth be on location and drilling on lease (or in unit containing this lease) on or before the expiration of the primary term, and that the drilling of said well be continued with due diligence until completion. Construction of a well location, without actual drilling as described above, will not be deemed commencement of a well.


#4

The the official Spud date from the OCC would probably be in compliance with your lease.


#6

If it is a two section well, then if the surface location is not in your section of a pooled unit, but the well is spud, it counts.


#7

Thanks. I appreciate your response and advice. The well is a two section well in sections 30 and 31 of 6N3W, and I believe the well surface location will be in section 19 of 6N3W. It’s been a long process of protests between Native Exploration, Casillas and Roan. Our lease was originally with Citizen and then assigned Roan and subsequently to assigned to Native Exploration. Yesterday, Casillas filed an request for an emergency application and say they have an agreement with Native Exploration to pursue the application. With our lease expiration so close, I just want to be sure I’m aware of the best approach to monitoring whether Casillas actually does commence drilling in accordance with our lease.


#8

The spud notice will be your clue. The only thing that might throw a wrench in the works is if the OCC makes some ruling that would include your lease. You will just have to watch what the orders say.


#9

Thanks! I’ll watch for it.


#10

Seems to me stating what “complies” with this phrase in relation to a MUH Well is going way out on a limb dispensing legal advice. My recommendation is that Joyce consult an oil and gas lawyer on this issue.


#11

I would say that the Keyword probably keeps her off the limb


#12

Interesting thought. So is it your opinion that a statement of a probable outcome is not legal advice?


#13

It would seem to me that legal advice is what someone gets when they seek out and pay an attorney. Anything other is just conversation. As they say “buyer beware”!


#14

I am not giving legal advice, just merely suggesting clues in wording to watch for based on 40 years of being in the business. Once the possible date of expiration has passed, then contact an attorney if you need legal help. The forum is meant to be a place for helpful conversation and sharing of experience. As a geologist, I would never presume to be giving legal advice as that is not my area of training or expertise. Hence my deliberate use of “may” or “probably”. Free advice is always worth what you pay for it. Consult an expert when needed.


#15

We appreciate your knowledge, insight and willingness to share.


#16

So you are saying the spudding of a well on the surface location in Section 19, (which is neither the location of the lease nor in the unit containing the lease) satisfies the commencement clause provision in the lease: “Commencement of a well according to the terms of this lease will require that a drilling rig capable of drilling to total depth be on location and *drilling on lease (or in unit containing this lease…”

And, you are saying that “it counts” is not legal advice?

I respectfully disagree and suggest the circumstances call for the advice of an attorney.


#17

I understand that the information provided on the forum is not the same as “legal opinion” that one pays for. Even so, I think we’ve all learned that there’s a wealth of experience here and I find it very valuable.


#18

Also, I just noticed that Native Exploration has amended their application and relocated the surface location from 19 to 31, so it will be within the multi-unit 30/31 area. Interesting that the proposal is to go north from 31 to 30. My experience is certainly limited but most of the wells seem to go from north to south. Any opinions on that?


#19

No doubt there is some really good business advice given on this forum, and sometimes there is no bright line marker between business advice and legal advice. There are some member-lawyers who could weigh in on the commencement clause construction, but I guess they don’t have answers.


#20

Regarding the north to south or south to north, it might depend on several different items. Some of them might be proximity to a road, the topography of the land to get a good surface location, the structural dip of the reservoir (very important), the natural fracture patterns of the reservoir, etc.

Some companies prefer to have the toe (end of the well) a bit higher than the heel of the well (the beginning of the horizontal section) to enhance drainage, so that pertains to the structural dip of the reservoir item.


#21

Hi Joyce:

For what it is worth, Casillas filed the intent to drill for the Captain Jack well yesterday. Surface location is in Section 32.