I have an old chalk well that was drilled in the 90’s that is currently leased to a very small oil company. The lease is being held by operations. The lease reads that if operations cease for 90 days then the lease ends. Well this has occurred and thinking that it would break the lease I hired an attorney and began the process. I’m now 6 months into this with no real progress. The company put forth a list of work that was done during this time which was absolutely made up. I know because I live near the well and I have contacted the vendors. My attorney tells me that he needs to begin taking depositions to disprove the oil companies info. All of this began because we have the eagle ford shale under the chalk, and we thought it would be easy to end the lease. I’m now being told this could take a year or more and cost tens of thousands of dollars. I would greatly appreciate any advice on this issue. Thanks so much, and God Bless!
It may cost tens of thousands of dollars to get to the bottom of it, that's true. Presuming you have the right of it, did you expect them not to lie? I don't know how close of a watch Google Earth keeps but you may need a subscription to it to help you. They can lie to you as much as they want and it will cost them nothing to do so unless you carry through to a conclusion. Yours may not be the only lease at stake. I would contact others and persued them to share the burden. If you can come up with solid evidence that the work was not done, then convince them that you, hopefully a group of you, are willing to push through, the lessee may decide that it isn't worth THEIR legal fees just to lose. They will keep telling lies until it starts getting expensive for them also, so far they probably have zero dollars invested, because telling a lie is so cheap. Only you can decide if it's worth your time, if it's ok for them to treat you this way. Don't start anything you don't intend to finish. I did read somewhere in the forums that someone prevaled against a lessee who got production after the lease had expired, from what I read the court decided that the lease was at will and that the lessor could cancel at any time. It would be funny if your lessee spent alot of money and lost it after getting production on a lease that they had been warned had expired. I think you should ask your lawyer if there is any downside to recording a statement that the lease had expired. I would want to be on record, partly because it would be a cloud on their title and may make it difficult for them to sell your lease to profit from and shift the burden to some other company. Good luck to you.
Mr. Johnson:
You might have an avenue that would be beneficial in adding evidence to your case in regards the fact that this company did not conduct the work. I would take the evidence of work provided by this company and visit the Railroad Commission of Texas (field office) where detailed records are maintained on each well. Certain downhole work would have to be reported to the RRC before being conducted, thus a research of the file records for this well would be a great source of evidence to prove their statements are true and if no evidence is found, your case gains additional merit. I'm not sure exactly which field office would maintain these records but it will most likely be the San Antonio or Corpus Christi offices. Also, you could find out the RRC inspectors name for your area and make contact with this person for further information.
You might consider asking the existing operator to release the rights below the base of the Chalk. This would allow them to keep their existing well (for the time-being) and free you up to lease to an Eagle Ford lessee.
You've already put the existing lessee on notice that you're on top of the continuous operations issue, so you can count on them to do what ever it takes to perpetuate their lease.
This might be a win-win solution that all can live with.
I was typing exactly what Mr. Vincent said, when his response popped up. I think this is a great idea. Use the information you have as leverage to get them to release below the Chalk.
Jeff Vincent said:
You might consider asking the existing operator to release the rights below the base of the Chalk. This would allow them to keep their existing well (for the time-being) and free you up to lease to an Eagle Ford lessee.
You've already put the existing lessee on notice that you're on top of the continuous operations issue, so you can count on them to do what ever it takes to perpetuate their lease.
This might be a win-win solution that all can live with.
Depending on how your lease is worded, the second avenue of attack on lease terminations is to prove the lease was not producing in paying quantities. It is too complex to go into in this post, but basically you have to show the small production was not profitable after you consider the operating expenses. The big fight usually is whether the well needed to be worked over, as this can make a stripper well unprofitable. Also, if the well site needs to be cleaned up, you may can add these expenses in.
You don't say how many acres they are trying to hold with this lease, but if it as an excessive amount of acres, a partial release, or allowing them an override on the Eagle Ford well are other options.
I doubt any operator is going to release deep rights that are "held by production" - those are proven reserves they "own". I don't want to be a negative nancy here, but you might want to consider visiting with some other operators in the area to see if there would be a desire to lease and what they would pay for a lease if the minerals were "open"? I'd hate to see anyone spend thousands and then be told by the operator that they don't want to lease because the Austin Chalk has depleted the Eagle Ford in that area or they can't drill the acreage for some other reason. Has your attorney asked the current operator if they have plans to drill to the Eagle Ford? If not, you might discuss that and discuss some sort of settlement agreement where they commit to drill a well within so many months and you don't pursue terminating the lease. Just trying to offer some non-legal alternatives here.
Mr. Johnson, the oil and gas professionals seem to be telling you that your lessee does not have to live up to the contract and your best option is to settle. It makes me sick to say that if you are not financially capable or can't get a group together that would be financially capable, not starting this would be the smart thing to do. It goes back to what I have been trying to tell people that if you aren't financially able to enforce a contract that it would not matter what protection you had under the contract. I wish you good luck.
I did not mean to say a lessee doesn't have to live up to a contract and I did not say the best option is to settle. However, I generally look at cost versus benefit. If it costs me $50,000 to litigate and get a court order that my lease is terminated, I'd be sure to expect more than $50,000 back. I've never been able to get the mortgage company to accept my principals and what's right as a house payment, so that's where I was coming from. I hope that you contact other operators in the area and get some offers. At a minimum, then you know what to expect. And if you get someone who wants to lease your deep rights they just might be your best co-party to any agreement since it's beneficial to them to fight the legal battle and be able to drill it themselves.
My first question would be? are you using a general lawyer or an oil/gas attorney? Their is a big differents. I'm not saying that a general attorney aren't good, but it's like going to a doctor. Do you want someone that does it every day or some one who has to look everything up before he does your surgery?
It can cost a lot of money to get a lease back, but it can be done with the right evidences. I'm betting that the oil company is just barely producing the well hoping that some other company will make them a big offer for your lease. This is done a lot by small companies.
Good luck.
The AC is above the EF so have you checked to see if the lease has a Pugh Clause?
I have a friend that is an attorney. I don't know the particulars; but, this attorney's father owned a rather large piece of property that had a shallow well or wells on it from way back in the early days, probably the 40"s. I was told that one or maybe more wells were on this property and were not producing. Since there wasn't a Pugh clause when the old lease was written, this or those non producing wells were holding the full property under lease. This went on for many years and a few years ago, when the dad decided to divide his property up and deed it to his children, something miraculously happened. Again, I heard a number of stories; but, somehow the son or sons that are attorneys broke the strangle hold and got some or much of the property back. Maybe only the deep rights since I've only heard here say and don't know the real story. It might be money well spent to have your attorney call my attorney and chat for a few minutes.
If you are interested, select me as a friend and I will give you his phone number and name.
Good luck!
Bigfoot,
I may be wrong, but in some states even with a Pugh clause it can hold up to 160 A. If the wells were only a marginal well, lets say making what it cost to operator, it can be called non-production and you can get it back. Each case is very different, but their are ways to get it back in some cases.
Virginia:
I will be the first to admit that I really don't understand these rules well enough to give anyone advice; but, with my limited knowledge, I believe, at least in Texas that it depends on the depth as to how much a well can hold, if the Pugh clause is in effect. I believe from very shallow (40 acres) to deeper chalk (80 to maybe 160). Now that these long laterals are coming to play, a new playbook has been opened up. In the case I mentioned previously, there was a considerable number of acres being held from long ago with an old lease; however, just from what I've heard locally, this situation parallel's the situation Mr. Johnson described.
Of course, these guys are experts at filibustering or stonewalling to accomplish whatever they want to do. That's why we need to spend many hours and seek the best advice we can find or afford, so we have done our best to get the best and most objective lease we can come up with in the beginning. There is always some give and take; but, having a landman walk out the door to never return isn't the worst thing that can happen. Anytime I think about this happening or hear someone putting themselves down for letting this happen, I always think about Garth Brooks' song "Thank God for Unanswered Prayers"! When talking about our land and our minerals, oil leases, pipeline right of ways, electrical line right of ways and water line right of ways are nice; but, need careful attention before signing.
Virginia Pflum said:
Bigfoot,
I may be wrong, but in some states even with a Pugh clause it can hold up to 160 A. If the wells were only a marginal well, lets say making what it cost to operator, it can be called non-production and you can get it back. Each case is very different, but their are ways to get it back in some cases.
There are both Vertical and Horizontal Pugh Clauses. What Virginia and Bigfoot are talking about is a Horizontal Pugh Clause. This is where you have a 1000 acre lease with one producing well on an 80 acre unit or spacing. A Horizontal Pugh Clause in a lease would make the Oil Co. release all acreage outside the 80 acres if it was not developed before the lease term expired. What Wildcatter was originally referring to is a Vertical Pugh Clause. This is the scenario that better pertains to this situation. Here, If lease had a properly written Vertical Pugh Clause, if minerals were leased and a well was producing down to the Austin Chalk formation; when the lease term expired (i.e. 3 years), the Oil Co. would have to release everything x ft. below the deepest depths of the Austin Chalk formation (or something similar to that depending on the wording) thus, leaving the Eagle Ford formation unleased.
Texas Tea,
I have had V Pugh Clauses in leases as well as depth clauses and in Oklahoma a 40 A spaced well can hold 160 acres. In TX & Co, that is different, that is why I said, each cases is different.
Trying to get a oil company to release acres outside the spaced area or depth can still be a big problem and very costly. I have done it a couple of times, but it was costly. Usually they settle out of court while you are in the chamber, that way they don't have to pay your legal fees
Scary stuff! It's always tough to play on the turf of someone else and give them the home field advantage from the get go. These guys built the system, bought the judges and continue to use each to their advantage, so we need to do our best to develop a lease that avoids many of these tangles. But, back to the spacing and how many acres can be held is a complicated mess and when left up to the fox to guard the hen house is asking for trouble.
Virginia Pflum said:
Texas Tea,
I have had V Pugh Clauses in leases as well as depth clauses and in Oklahoma a 40 A spaced well can hold 160 acres. In TX & Co, that is different, that is why I said, each cases is different.
Trying to get a oil company to release acres outside the spaced area or depth can still be a big problem and very costly. I have done it a couple of times, but it was costly. Usually they settle out of court while you are in the chamber, that way they don't have to pay your legal fees