I’m with a real estate development company, and we have our eyes set on a ~250 acre tract in Texas. A problem we are running into is that there are two oil wells that are on the south side of the property, and we need those P&A for us to develop how we have planned. Currently one well is plugged, and the other is listed as “Active”. Looking at records, the well hasn’t dispositioned any oil since 10/23 and is “producing” (which I know isnt true) 5BBL/month.
Looking up the operator there is no lease filed within the county for his company and the mineral owners, only assignments of WI from the previous operator and WI owner. We have offered to pay the plugging and decommissioning cost for both wells but he is playing hardball knowing we are a developer and wants almost triple what we offered him for the “lease”.
My question is - if there is no lease currently filed, can we get the mineral owners information get a lease signed ourselves? Since there isn’t on filed then technically it wouldn’t be a top lease, correct? Also - when it comes to signing a new lease, we would only have to get 51% of the mineral owners to sign it for it to become effective and not the full 100%?
You first said one of the wells was plugged but later that you’d offered to pay the current operator the plugging and decommissioning cost of “both wells”. If only one needs to be plugged, I’m assuming by “decommissioning” you mean the operator agreeing to terminate their lease. If the lease is beyond its primary term then it would terminate when the second well was plugged, provided that’s the only well allowing the lease to be “held by production”.
On our comment about “no lease filed within the county for his company and the mineral owners, only assignments of WI”, there must be a recorded lease or there wouldn’t be a well producing or working interest to be assigned. The assignment itself should list the recording information of the leases the assignment covered, probably on an attached exhibit.
If it doesn’t, the reason you haven’t found a recorded lease is probaly because you haven’t searched the grantor index for the name of the mineral owners who signed the lease. Depending how old the lease is there could have changes in the mineral ownership since the lease was signed. If you know the names of the current mineral owners you should be able to trace their chain of title back through the records until you find the lease. You can also check the Railroad Commission records on the permitting of those wells to get the name of company who drilled them and the date they were drilled.
Do the current surface owners of that 250 acres also own the full mineral interest? If not, they may not have “surface control”, which could mean getting the existing wells plugged and the lease terminated wouldn’t end development issues regarding future mineral activity. If you don’t get surface control when you buy the land, rather than trying to lease it (or top lease it) you probably should be trying to negotiate a waiver of surface use with the mineral owns, allowing them to sign future leases where wells could be drilled through pooling, or horizontal drilling, but with assurance of no surface use that could impact your development.
Bottom line, it sounds like you need to hire a landman to confirm the current status and figure out what’s possible there.
Dusty has given you great advice. You also need to consult an oil and gas attorney for a full understanding of the situation. First question is the full gross acreage under the lease(s) and whether there are other producing wells which hold the lease even if not drilled on the acreage. Or if the acreage has been pooled with adjacent acreage, then wells on that tract may hold the lease(s). Second, the lease(s) may be severed by acreage or depths among multiple lessee companies, especially if they are older leases. Third, it has become common for XYZ Operator Co to drill and operate the wells, but for the lease ownership to be in XYZ Leasehold Co, or in XYZ Leasehold and several related or unrelated entities. Once you have the title work done, you will know what company or companies own the underlying lease(s) and have authority to release all the depths and acreage. Finally, taking a lease yourself will not be a long term solution as any lease will terminate at the end of its primary term unless there is production.
Thanks guys! We retained a landman last night to go ahead with the chain of title anyways as we knew we were going to need it. I thought in Texas you the assigned operator was supposed to have a lease in their name to honor all royalty percentages? Like lets say AB Operator originally signed a 1/4 lease with the mineral owner, and CD Operator comes and takes over the wells 10 years later - there isn’t anything documented where it says CD Operator has to pay out the 1/4 royalties. Would the mineral owners then have right to void said lease and not allow the operator to access the wells?
World is not that simple. First AB Oil could lease and its operating subsidiary AB Operating drills and operates wells but owns no part of leases. Second, there could be 10 mineral owners (MI) with fractional interests that total to 100% and each one leases to different company - AB Oil, EF Oil, XY Oil, etc (called Working Interests or WI). The lessees get together and agree to drill, selecting one WI to operate and others to pay their share of costs - governed by terms of Joint Operating Agreement. If the oil and gas is sold together, then one entity will pay all the MI. It could be the operator pays or it could be that the oil purchaser pays. But EF Oil could sell its own share of oil and gas and pay its own MI separately. Or the WI could hire CD Operator to operate (i.e. assign well operations) but CD does not own the leases. CD could pay MI or oil purchaser could pay MI. Plains pays a lot of MI for oil it buys, but Plains does not operate wells or own leases. Termination of the lease(s) will depend on the written terms and whether all production and operations have ceased. Hopefully in your situation there is only one lease and the minerals are owned by the seller who can tell you if he is being paid. You can also check the county CAD office records to find the Royalty Owners in each well as they are paying property taxes on the producing minerals.