I am interested in anyones thoughts on the Habendum Clause which says that an oil or gas lease is active so long as there is production. The clause has variations but this is the most common. I can see the need for the clause to protect the leasee's investment in the current production or potential production on any activity that is underway at the time of the lease expiration date. However, I disagree with the leasee having the right to further exploration using new technology, that has come about after the original signing of the lease, without the leasor's consent. This allows the leasee to take advantage of new technology to increase his income but not the leasor. it also supports the "HOLD BY PRODUCTION" (HBP) which is poorly worded and not very definitive at all.
I don't quite understand how you conclude that new technology increases revenue for the lessee but not the lessor.
I am a WI owner in several wells that were drilled to the Anadarko and we are now developing the Granite Wash with horizontal techniques. That is good for all.
None of the Lessors (not leasors) complained when they received $1000-$1600 per acre in 1982 in Washita County, OK.
Hi Buddy,
Thank you for your response. I definitely respect your input. My situation is this: I have interest in a gas well whose lease was signed in 1976 for 5 years with 1/8th royalty. The well began production in1981 and is still producing today. The production is minimal and has lessened recently due to drilling activity in the surronding area reducing the pressure.HBP has kept the 1976 lease valid and i have no quarrel with that. However, I am told that the current operating company can drill additional wells(horizontal, I'm sure) to further drain the unit or they can farm that out to another operator, all under the terms of the 1776 lease with no bonus considerations and with 1/8 royalty which is unheard of today. That is why I say that the lessee can use current technology to improve his position but the lessor is stuck with the same royalty that was being paid in 1976. I would like the Habendum Clause and the HBP limited to the production or production activity that exists at the expiration date of the lease. Any further activity would call for an amendment to the lease or a new lease.
Please tell me where my position is not more fair to the lessor than the way it is today.
Jack Bost
Buddy Cotten said:
I don't quite understand how you conclude that new technology increases revenue for the lessee but not the lessor.
I am a WI owner in several wells that were drilled to the Anadarko and we are now developing the Granite Wash with horizontal techniques. That is good for all.
None of the Lessors (not leasors) complained when they received $1000-$1600 per acre in 1982 in Washita County, OK.
Best,
Dear Jack,
Thanks for the explanation. Now it makes sense to me.
How would you feel if the 1976 lease had a clause that only held the currently producing formation? That accomplishes the same thing.
I am curious about something. Well, really a survey. Anybody else with old production should chime in.
Did you take the first lease offer you or your predecessor was presented? Was an attorney or landowner landman involved or was a trustee from a good oil and gas trust department at the bank hired?
The reason that I bring this up is approximately 85% of the people take the very first offer. i think with the information expressway on Mineral Rights Forum that the percentage will drop by at lease 10 points in a couple of years.
On the other hand, it sure is nice to have had production for 31 years.
Buddy--The initial lease on this property was signed in 1966 with no rresulting production. The second lease became effective in January of 1976. My late aunt was the lessor at the time and she was an officer in a small bank in Oklahoma so I am pretty sure that an attorney and a landman was involved. so the first offer was not the only offer in both instances.
As for the wording of "current producing formation" I would need a better understanding of formation before agreeing. I am hung up on the fact that the well as been producing for 31 years, which I appreciate, but there is activity around this unit that is reducing the production. Allowing the current operator to drill or farm out the drilling using technology that did not exist when the lease was signed but have the 1/8th royalty carry over to the new production is not fair play in my book. There is not much difference in the numbers 1/8th and 3/16, but when you are talking about royalty it is a 50% difference.
Regards,
Jack Bost
Buddy Cotten said:
Dear Jack,
Thanks for the explanation. Now it makes sense to me.
How would you feel if the 1976 lease had a clause that only held the currently producing formation? That accomplishes the same thing.
I am curious about something. Well, really a survey. Anybody else with old production should chime in.
Did you take the first lease offer you or your predecessor was presented? Was an attorney or landowner landman involved or was a trustee from a good oil and gas trust department at the bank hired?
The reason that I bring this up is approximately 85% of the people take the very first offer. i think with the information expressway on Mineral Rights Forum that the percentage will drop by at lease 10 points in a couple of years.
On the other hand, it sure is nice to have had production for 31 years.
Best,