"Clarification to current lease"

Texas Mineral Rights Howard County, TX
1

We have a mineral lease in Howard county. The Producing energy company wants us to sign a document that would “clarify” the current existing 2014 lease. They are saying, " Your lease has language that depths below the deepest producing formation (which is the Wolfcamp) have expired. Before moving forward with development plans, we want to clarify the base of the Wolfcamp formation as recognized by the RRC and where the depth expiration takes place. In exchange for your cooperation we are offering $300/nma that you own in the lease."

Is this essentially trying to extend the current lease rather than issue a new one? And does anyone know what the going lease rater per mineral acre is in Howard County?

Thanks for the help.

2 Likes
2

Get a complete new lease to address this. You are in the drivers seat! It doesn’t happen often.

1 Like
3

We had a similar situation in Howard last year. My first thought was also to jump in and ask to renegotiate the entire lease. Since it involved a lease held by production, after reviewing the current lease, we decided there was some chance that the language of the lease would favor the producer without further bonus. So, on second thought, we took the additional bonus and also hope that this will facilitate further royalty production with the extended lease. If I was asking for a new lease, I’d need an oil and gas attorney to look at the specifics. It may well be worth the money for a new lease depending on your current lease. Let us know what your experience is on this.

Best wishes in either case!

2 Likes
4

This request does not make sense. If the existing lease allows the lessee to hold to base of Wolfcamp, then there is no need for a clarification. First, are you certain that existing production is in the Wolfcamp rather than a shallower formation? Second, with 2014 lease, the first well or wells may have been in shallower formation such as Bone Spring. Could continuous drilling have expired before the Wolfcamp well was drilled and so the Wolfcamp is unleased? Third, do not use a definition of a formation depth as recognized by RRC. It should be the stratigraphic equivalent of XXX feet according to the log of a specified well. Also, RRC fields often combine multiple formations. For example, the Phantom (Wolfcamp) field is from the top of Third Bone Spring down to base of Wolfcamp formation. Two Georges (Bone Spring) field includes Bone Spring and part of Wolfcamp A. You need to have a oil and gas attorney review your lease and the relevant well information, particularly the timing of the continuous drilling clause, to see what depths have expired. You can then negotiate a new lease for open depths, including part or all of Wolfcamp.

4 Likes
5

Couple of questions you might consider. Was the Producing energy company you refer to the original lessee on your lease, or did they acquire or take assignment of it from the original lessee? If they took over from another lessee what they are asking wouldn’t be that unusual.

What will they tell you about the “development plans” they have? If you can verify that agreeing to amendment the lease will result in your acreage being included in additional drilling activity you have some incentive to work with them beyond what they have offered to pay you.

What is the likely outcome if you aren’t able to reach agreement on this? You didn’t mention how many acres are involved, which may determine the amount of negotiating leverage you have. Before getting too aggressive about demanding a new lease or other changes I’d try to figure out what their alternatives are. Can they proceed without you agreeing to this change?

What are they saying is the base depth that is “recognized by RRC”? I question whether RRC has one “recognized” base depth for any formation. It always depends on the specific area that is involved. There are different methods of establishing it but depth clause provisions often reference the strategraphical equivalent of the base of X formation as established by a certain log of a specific existing nearby well. Ask what method and depth they are proposing to establish that base depth in your lease and see if you think it is reasonable. If they proceeded with their plans without your agreement and you didn’t like the outcome, proving their interpretation of the lease wording was wrong could require an expensive lawsuit.

4 Likes
6

Do you know what the oil companies in the area paying per mineral acre?

2 Likes
7

Howard County is fairly large (time for somebody to chime in that its the XXth biggest county in Texas or something, thanks bro) so what oil companies are paying per mineral acre is dependent on where it is, but I think what you want to know is what is the going rate per mineral acre for whatever depths may have expired. Which is going to be dependent on what expired and is going to be far less than the going rate for all depths.

A new lease for depths below the Wolfcamp is going to be a few hundred bucks per acre, maybe.

Simple answer is to just say where your lease is. Then somebody can tell you the depths of the current wells.

I agree with Tennisdaze, this request as written doesn’t make a ton of sense. But current wells assuredly are not in the BoneSpring in Howard County.

3 Likes
8

Thank you for your input. This is the lease description:

Tract 1: Section 19, Block 32, T1S, T&P Ry Co Survey, Howard County, Texas.

Tract 2: Section 20, Block 32, T1S, T&P Ry Co Survey, Howard County, Texas.

Tract 3: The E/2 and E/2 of the W/2 of Section 30, both in Block 32, T1S, T&P Ry Co Survey, Howard County,

9

I agree the request does not make sense. If the lease covers this already they should not need clarification. Nowhere in the current lease do I see the formation mentioned. Below is what the actual document they want us to sign says. Paragraph 12 of the current lease is titled “Continuous Development”.

WHEREAS, Lessor and Lessee wish to amend the Lease as stated below;

NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, Lessor and Lessee wish to amend the Lease as follows:

Add the following to Paragraph 12 of the Oil and Gas Lease

Notwithstanding anything to the contrary included herein, shall a horizontal oil or gas well be permitted, drilled, and completed as a producing well on the leased premises or lands pooled therewith within the Spraberry (Trend Area), District 08, Field Number 85280300 as established and amended by the Railroad Commission of Texas, “Formation,” for any and all purposes in this Lease, shall mean to the base of the correlative interval of the Spraberry (Trend Area) as defined as being the top of the Strawn formation, seen at a depth of 9,004 feet as found in the electric log of the Sparky #1 well (API # 42-227-38496) in Howard County, Texas.

Except as amended by this Amendment of Oil, Gas, and Mineral Lease (“Amendment”), the Lease shall remain as written. As of the execution date hereof, Lessor hereby ADOPTS, RATIFIES and CONFIRMS the Lease, as amended, and REVIVES the Lease insofar as it covers additional depths embraced by this Amendment, and Lessor hereby GRANTS, LEASES and LETS the Land to Lessee, its successors and assigns, subject to the terms and provisions of the Lease, as amended.

1 Like
10

Thank you for your post. They did take this lease over from another company, These are good questions for me to ask. They have not responded to my last email I sent on Friday. I will reach out in a few days. The acreage amount is not huge but there are three family members with separate ownership interests. We have “non-participating royalty interests” so we don’t get much of anything unless they do a new well. They drilled two new ones last year.

1 Like
11

If you only have an NPRI, then I do not understand why you would have signed a lease in 2014. I would have expected you to have ratified the lease. Any proposed language amending a lease can only be evaluated in relation to the original lease language. You need to consult an oil and gas attorney to understand this proposal.

2 Likes
12

Lynn you are getting some great words from experienced oil and gas folks here. I’m just a mineral owner in a family with split interests like yourself. I’d suggest that before you go off to hire an attorney that you get a solid agreement with your other family members on whether or NOT they plan to participate financially in the costs. You can’t ask for participation later if they were not on the page with you to begin. If you don’t regularly communicate with each other, that needs to happen if you want to take advantage of the improved bargaining position. We have regular Text and Email communication with cousins and siblings.

You might get better response from the oil company in a phone call from my experience. Again, I’m not a landman, but maybe I’ll be one when (if) I grow up…

I think it was Dusty that said that you may not have a strong position to argue if the oil company goes on with the drilling without your participation. That was our conclusion when we took the money and ran.

Also, Sparky 1 is in Section 3 - and I don’t see that section on what you put in as your lease sections? So I thought I’d add to the confusion :rofl: This is snipped from TXRRC Start snip> |LAST PERMIT ISSUED|804413| |LAST PERMIT OPERATOR NUMBER|448014| |LAST PERMIT OPERATOR|JPM EOC OPERATING, INC.| |LAST PERMIT LEASE NAME|SPARKY| |TOTAL DEPTH|9827| |SURFACE LOCATION|Land| |ABSTRACT|153| |SURVEY|T&P RR CO| |BLOCK|32 T1S| |SECTION|3|

end snip Maybe depths are taken from nearby sections?

Again, best wishes

1 Like
13

You have 4 Hz wells.

Two Waco Kid : Drilled to the Wolfcamp A (some 200’ into the Wolfcamp) Two Scott Willie : Drilled to the Wolfcamp B or maybe Lwr A (some 500’ into the Wolfcamp)

Deepest well is Scott Willie A 0844WA, drilled to a depth of 7660’ subsurface.

In Sec 29/32 just by you, HighPeak is drilling Wolf D/Cline/Something wells to a depth of 9200’+. St. Rita wells. So…well…huh. I would guess that somebody wants to confirm whether or not your current lease has expired to that sort of depths. If it has, well then the going rate to re-lease those depth is higher than a few hundred bucks.

The reference well (Sparky #1) had the Wolfcamp at 6700’ and the Strawn at 9004’. Its 3-4 miles to the NE of you. Around you the Strawn tops don’t seem real consistent. Somewhere between 9200’ and 9400’ (which would be where the Wolfcamp/Trend ends). It’s entirely possible that they want to drill whatever zones HighPeak is drilling and want everyone to stack hands that they are in the Trend/Woldfcamp pool and not below it.

:man_shrugging:

5 Likes
15

When we signed the 2014 lease it was with another company. Not until this oil company bought the lease and did another dive into the legal inheritance trail did they find the NPRI. In the past the oil companies were so eager to drill that they did not do a very thorough search of the records. Upon our own additional research we are in agreement with the NPRI.

1 Like
16

Thank you for that explanation, NMoilboy. I am not sure I understand it all but the oil company has gone silent since I challenged the document and price of $300.00. I can sit tight and see what their next play is. I don’t want to spend money on an attorney, but a land man I know who does not have wells in this area, told me that they were wanting to extend the current lease without doing a new one an paying up. That is why the offer smelled fishy to me!

1 Like
17

This topic was automatically closed after 90 days. New replies are no longer allowed.