We have royalty interests in a certain property that has two direct offset vertical wells of the east lease line and has a significant horizontal well off the north lease line that has now been producing for around three months.
The operator has two HZ wells now permitted on us but has for the third time delayed moving a rig in. They are going to be completely out of compliance with the State lease. It calls for any well drilled within 1000’ feet of our lease being offset to protect our acreage from drainage.
I’m not happy.
Would appreciate any and all input.
I assume you mean that the proposed wells are not in compliance with spacing rules probably requiring an exception to Rule 37 (too close to lease lines or other well) or Rule 38 (insufficient acreage). Are permits issued for the wells? Could there be a hearing scheduled?
The wells are permitted, although one is not an adjacent (or direct) offset. The point is that on our east line there are two vert. wells that have been producing for over a year now at around 660' of our line. The lease calls for wells to be drilled within 100 days, effectively protecting our acreage. The newer well (and horizontal) is 467' off our central north line. It is around 90 days into production and our operator has recently permitted a second well for AFTER THE FIRST OF THE YEAR and it doesn't appear to be directly adjacent to the offset.
Just wondering if anyone has been in a similar situation???
I'm sick of the delays and seeing production right next to us!
Really not much you can do. The permits are legal and production legal. I know you feel they are draining your property.
When you say "The lease" do you mean the lease you have signed for your property? Is the producing horizontal off your central north line operated by the same company that holds your lease and have they recently permitted a second well NOT on your property? Again, nothing you can do to force them to drill on your land unless you have some unusual language in your lease. It is their money, their drilling budget and schedule, etc. Oil companies generally operate on a time schedule that is rather different than us ordinary people. Field development schedules can run over decades. The first drilling in the Barnett Shale for example began in the late 1970's and the field is still not fully developed. Such frustrations are often the force behind people simply selling their royalty interests because they want the money now. Hard to have patience with it, but you need to have a long term view.
We have a state lease and there is a specific paragraph requiring the operator to offset any well drilled and producing within 1,000', within 100 days.
The operator to the north has a non op. W.I. position in our section. I don't believe they have permitted a second offset yet.
Does the language require the operator to begin drilling operations within 100 days or to simply apply for a permit etc?
You might want to find a lawyer who is expert on oil and gas leases, but if they have violated the terms of your lease you might be able to send them notice of such and seek to sign a lease with someone else. These things can be very complicated. It sounds like you may have grounds to break your lease, though I would get expert opinion first.
Perhaps just a letter to your operator mentioning the lease terms might do the trick.
It’s clear by the language that they are required to drill, but no consequences for failure to do so are listed. Have a call in to my attorney as we type…
Definitely get some competent legal advise.
You need some questions answered that nobody who has not read the lease in it's entirety will be able to answer. The first multi-part question, is the lessee in breach?
If the lessee is in breach of the lease, what is the remedy? The wording of the lease itself will determine if you are entitled to money damages or if the lease is void. The money damages I think would be more likely, but money damages are not going to be given in my opinion without your bringing suit. Are you ready for a lawsuit? The state may join you in your lawsuit, but what if they don't?
Like you, I don't believe the lessee is holding up their end of the bargain, but there is a chance they could weasel out of it. If the wells are no closer than regulations allow, how are you going to prove that you have suffered any damages at all?
Lessees violate the covenants of leases every day and know they can do so with impugnity unless someone is willing to pony up enough money to take them to court, and maybe even then the courts will side with them that you have not truly been damaged. If you really think you have been damaged, it's going to take alot of commitment on your part of both time and treasure to set things right. Good luck whatever you do.
Some spacing interpretations go by the penetration point on a horizontal and distances from the path of the well, not from the surface location. It that case, the hz offsetting you may not technically be within 1000 feet.
Terminus is 467’ off our line.
Well, that's it. Let us know how your legal advice works out.