The practice of drill and run, whereas the operator brings in minimal equipment such as work over rigs to conduct an initial drilling activity then leaving thus holding the lease , is a practice which could be a reality since leases in some areas are nearing expiration dates. The cost to negotiate a new lease would be extremely higher in regards to bonus/acre and % royalty. This is where a mineral rights owner before signing a lease should consider adding a clause which would not allow this type of acitivity. I recently read an article which addressed this issure and contained the following clause: “Drilling in any clause of this oil and gas lease which permits extension of the primary term of the lease means an actual drilling rig, capable of drilling the well to the proposed depth, whether total vertical depth in a vertical well or total measured depth in the case of a hoizontal well, is on location and actively drilling prior to the expiration of the primary terms of the lease.” As a mineral rights owner, you should always make sure this is addressed in your leases.
Excellent blog. Perhaps production in paying quantities should be the only event to extend the lease beyond the delay rental period agreed.
I have a few wells that seem to be coming off of confidential unfraced. My operator claims the well stimulation will cost about 4.2 million dollars per well. I think an operator could delay the completion costs, by not hurrying to complete the wells. This would free up considerable cash for drilling [ and delaying fracing ] someplace else that needs to be drilled to prevent lease expiration, or plow the money into gathering more mineral acres. The fact that there is a shortage of frac crews, would provide the perfect excuse, because who is to say whether a cash strapped operator delayed ordering the frac crew or not? I don’t think I’m being unreasonably suspicious, considering the oil co’s are even seeking loans using undrilled [ not HBP ] leased acreage as collateral. I think operators are stretched tight enough that a couple of worse than usual winters could do them serious harm.
Mr. Kennedy:
Excellent comment on current operating procedures in the Bakken. This practice of delaying fracing could be a "ploy" in some cases while it is totally legit in others. Keep in mind that there are several major investors in these wells and they would have to be in agreement to operate in this manner while their investment dollars are tied up. your comment is very possible but really proving it is another matter.
Mr. Mallory; I agree that it could be problematical, with minority interests involved. The wells of mine that may be involved, the operator has almost 96% interest and as many landmen have said, lessors are just along for the ride, to which I would add those with a wi of less than 1% would I think have little more say than lessors. I also believe that if the operator did delay fracing, it would only be discovered after the fact and what if anything could one do at that point? I think a stink could be raised and the operator may have to dodge a bit but nothing would come of it in the end, in my opinion. My point is that operators in the unsophisticated Northern Midwest have been acting in such a manner that they would accept a little mud on their name to gain a temporary advantage. These same operators seem comfortable behind the shield of it’s not what you know, but what you can prove. And who is to say if they actually did drill and run, or delayed fracing, and who is willing to take them to court if they did?
Mr. Kennedy:
I see your logic and especially like your last line. I know that as a lessor, I am along for the ride but the whole process can be frustrating.
Upon further research, my operator has several more wells in the area, some that were drilled even earlier than mine which have come off the confidential list unfraced. Other wells by other operators in the area drilled in the same timeframe are producing oil. I’m going to contact my operator and see what they have to say, and if it doesn’t satisfy me, I will start tracking down all the names of the interests in my wells and my operators wells in the Skunk Creek/Two Shields Butte area. If they want to produce the minerals as they said, they need to do so with no unnessary delay, not just drill holes and sit on it. I’m unleased so it’s not like they paid me a delay rental to not produce.
I spoke to a representative of the operator I’m concerned with, and they assure me that they are behind but that the wells should be fracked in june but it may take as long as july. I consider this reasonable, beyond that, I suppose I will follow my instinct.
Mr. Kennedy:
Good luck on your time frame in regards to the fracking. I believe some operators rate a higher priority than others. I am just hoping that as time moves on, additional fracking crews will migrate into the Williston Basin as this is definately a problem area along with the lack of infrastucture to deal with the massive amount of wells being drilled. Good luck!!
The landman who wants to lease our property didn't know what drill and run meant. Really? They say that it's a take-it-or-leave-it lease because they are concluding their offers for the time being.
Stryker:
Sounds like this landman is putting a little pressure on you to make a decision. You didn't mention where your minerals are located but make sure that you do your homework about what operators are leasing in your area and what the going rates and lease terms are. I've always thought that your best decision is never made in a pressure situation.
Hi, Charles - yes, he says I have about a week since they are winding up their current contracts. My land is just south of Woolfforth, TX on Hwy 82. Hockley/Lubbock county line. It seems that the offer could be substantially improved. $250/20%
Stryker:
I can't help you in regards to information around your area. You might want to post any of your questions regarding that area under "County Groups" located under the "Group" heading at the top of the page. You can scroll down under Texas and find both Hockley and Lubbock Counties. Hope this helps.
Thanks, Charles - I really appreciate this blog post as it armed me with a bit more information on the pitfalls. Given your case for the “drill and run” clause, I find it disturbing that the landman claimed not to have heard of the term.
Stryker:
I don't think this is anything new as over the years, some operators have gone to any measure to hold a lease. This is just another matter that can be addressed in a lease with the proper wording. My minerals are located in both Montana and North Dakota in the Williston Basin (Bakken Play). To my knowlege, this type of activity is not common in this area as now operators are drilling multiple wells on a single lease. Good luck in your mineral adventures.
I wanted to update that Kodiak did finally start fracking the wells I'm under. The first of the four in the one spacing IP'd at 2695 bbl in the first 24 hours. Have to wait and see on the others.
Mr. Kennedy:
Good for you and your great well. Hoping the next three are as good or better. I haven't keep up with Kodiak as I've never had a lease with them. Currently, Marathon has a drilling permit on some of our minerals in Williams County but I have never dealt with them as an operator. Again, good luck on your next three wells.