I am asking advice on a well by Camino Oil in 3-11-8W. They want to drill a horizontal well, Vince Gill. There are two old vertical wells, Warren 1-3 and Elmenhorst 1-3 that are shut in. They have not been able to determine if these wells have produced in the recent past to keep the lease active or not. They have sent me a certified letter giving me two choices. I can participate in the well ($5.6 M ) or sign a new lease with them for $1000 per acre. If they determine in the mean time that the wells are active enough to maintain the old lease then this offer would be voided.
I just want to find out if I have other options. I do not think I want to participate but the $1000 per acre seems very low. Any thoughts?
C Smith
The information on the OTC Tax site says that Warren 1-3 is not shut in as of January 2020 and was still producing gas. It is spaced at 640 acres, so probably still holds your lease. Elmenhorst 1-3 has no payments within the last 12 months. Go back and look at your old lease and see it had any depth clause or if you were force pooled for the original wells. Participation is not for the novice unless you have deep pockets for decades, a good attorney and a good accountant. The bonus that they might offer is based upon the royalty. Many lease offers are low right now while oil and gas prices are low.
Ms. Barnes Thank you for the response. The actual wording is this - Your mineral interest is currently subject to an existing oil and gas lease that has been perpetuated beyond its primary term by the drilling, completion and production of the Warren 1-3 and the Elmenhorst 1-3 both being located on 3-11N-8W. Camino does not own an interest in the vertical wells and is unable to confirm if the vertical wells have maintained production in paying quantities. So, they are wanting to give me !0% now and the rest if the base leases are no longer in force and effect. So I guess I have nothing to lose by agreeing to this. How do you see it?
Personally, I am not a fan of top leases. An Overview of Recurring and Related Issues Involving Top Leasing.pdf (210.2 KB) Some people are willing to take the 10% and not get the 90%. I do not want any legal hassles, so I don’t do it. Up to you. Just make sure you read that new lease carefully as first drafts are not usually in the mineral owner’s favor. Given the current slowdown in the shale drilling, whatever Camino said a month ago may no longer be valid if they are not financially solvent. I have not kept up with them.
Are you getting royalty checks for the Warren 1-3? If so, then you are held by the well and your lease is still valid. Citizen Energy III LLC just sold the well in March 2020 to Blue Cedar Energy LLC PO Box 84922, Edmond, OK 73083 405-510-0928. Contact Blue Cedar and make sure they have your address. Ask them if the well is still in production in paying quantities and ask when you are going to get a Division Order and a check. That will give you a clue if the well is in paying status/ A quick look at the production data on the OTC tax site showed that Warren 1-3 was a still producing well as of January. Make sure you ask about the Warren 1-3 well 3501723741 as they bought several wells that start with the word “Warren”. That transaction covered 482 wells, so they may not have everything straightened out yet due to the COVID-19 slowdown.
If you were originally force pooled only for the horizon in the Warren 1-3, then you may be able to lease at the deeper level. However, since Camino says you are held by a lease, you need to find it and see what your original terms are.
Ms Barnes, Thank you for your response. I am getting a very small amount from Citizen. I inherited the mineral rights and I don’t have the original lease. Based on the info you have given I think I will turn this over to my lawyer. It sounds like it may be more complicated than what Camino is saying. Thanks again, C Smith
If you are getting royalties from Citizen, then your lease is still valid, so you may not want to mess with the Camino offer. Just my opinion. Talk to your attorney. You should attempt to get a copy of the lease from Citizen. However, since they just sold to Blue Cedar, it might have passed to them. If you think the lease was since about 1990, you may be able to find it on www.okcountyrecords.com and download it for a very small fee.
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