I’m curious what the legal and financial consequences might be for an Operator in this circumstance.
In time it became known that he had continued operating a producing gas well for 10 or more years wherein the lease expired at the end of the ( 3 year) primary term? ( Sauder vs Frye. )
In the state of Texas.
Dear Tony,
Could you please elaborate on the facts of the case, or in the alternative, post a link?
The usual reading in the usual lease form is the Primary Term, "AND AS LONG THEREAFTER AS THERE IS PRODUCTION IN PAYING QUANTITIES FROM THE LEASED PREMISES OR LANDS POOLED THEREWITH."
There can also be continuous drilling provisions in the lease that allow it to be extended beyond the end of the primary term.
True, but in a rare, very rare instance consider the events cited in the law case of " Sauder vs Frye ". A lease has provisions that both parties MUST be held to. Should the operator not, then what?
Dave Quincy said:
Dear Tony,
Could you please elaborate on the facts of the case, or in the alternative, post a link?
The usual reading in the usual lease is the primary term, AND AS LONG AS IS PRODUCING.
There can also be continuous drilling provisions in the lease that allow it to be extended beyond the end of the primary term.
I have no idea because I'm not familiar with the case. The short answer to some of what you may be hinting at is that mineral trespass can bring both possible criminal and civil liability.
If you are quoting from an actual case, why don't you tell us what the court said? What was the final outcome or judgment, based on what rules of law?
Thank you Dave, I think you just answered my question, by your expression "mineral trespass ". I will have to elaborate to extent I can later, I am walking out the door. An online search of that case will explain specifically what I was referring to. It’s an interesting case and likely rare.
Dave,
I apologize in that I’m not the greatest communicator. Please go to Leagle.com / Sauder v. Frye. Read the opinion relative to the lease ending for failure of the lessee to meet his contractural obligation regarding the pooling agreement stipulated in the lease. The substance of the lease required that the lessee " anytime during the lease execute an instrument identifying such Unit and file it for record in the Public office in which the lease is recorded". They did not and the court ruled that the lease ended at the end of the primary term.
If the lease ended at the end of the primary term, then gone is the bridge connecting you to the secondary term where in fact then the Well / Unit could be said “HBP”. As I read this opinion, Their failure to put of record, according to the terms of the lease, resulted in the lease terminating. That was the courts opinion.
Now, for you as the Lessor, imagine if this has happened to you. But not as in the "Sauder v Frye " case where it was within days of the deadline that they failed to record these documents. Suppose this comes to light regarding your lease and we are 10 years past the end of the primary term.
All this said, go back to my initial question which is really what I was after…what about this operator, just how serious would this omission be for them TODAY 10 years later?
I might argue that it was a moot point, or that the lessor is not entitled to relief for waiting ten years before he brought an action against the lessee, especially if the lessor was receiving royalty payments for ten years in accordance with the terms of the lease.
You might note also that in TITLE 2, SUBTITLE B, CHAPTER 16 of the Texas Civil Practice and Remedies Code, it appears that the Statute of Limitations would bar any relief or the filing of a lawsuit by the lessor pursuant to the facts as you describe them. The typical time period to file for a contract breach is 4 years. Trespass is 2 years. Fraud is also 4 years.
Tony Larman said:
Dave,
I apologize in that I'm not the greatest communicator. Please go to Leagle.com / Sauder v. Frye. Read the opinion relative to the lease ending for failure of the lessee to meet his contractural obligation regarding the pooling agreement stipulated in the lease. The substance of the lease required that the lessee " anytime during the lease execute an instrument identifying such Unit and file it for record in the Public office in which the lease is recorded". They did not and the court ruled that the lease ended at the end of the primary term.
If the lease ended at the end of the primary term, then gone is the bridge connecting you to the secondary term where in fact then the Well / Unit could be said "HBP". As I read this opinion, Their failure to put of record, according to the terms of the lease, resulted in the lease terminating. That was the courts opinion.
Now, for you as the Lessor, imagine if this has happened to you. But not as in the "Sauder v Frye " case where it was within days of the deadline that they failed to record these documents. Suppose this comes to light regarding your lease and we are 10 years past the end of the primary term.
All this said, go back to my initial question which is really what I was after........what about this operator, just how serious would this omission be for them TODAY 10 years later?
I appreciate that insight into those statutes. I don’t know that we would have really ever brought a suit even if it were allowable. Our principle interest as executive rights owner w/bonus, has always been that we might perhaps re-lease our acres should we now be free to do so.
If the lessor has in fact acted irresponsibly and would propose some compensation for their actions beyond the primary term, I don’t think we would turn a deaf ear.
Sorry, I meant if the lessee had acted irresponsibly.
Tony Larman said:
I appreciate that insight into those statutes. I don’t know that we would have really ever brought a suit even if it were allowable. Our principle interest as executive rights owner w/bonus, has always been that we might perhaps re-lease our acres should we now be free to do so.
If the lessor has in fact acted irresponsibly and would propose some compensation for their actions beyond the primary term, I don’t think we would turn a deaf ear.
I am confused. Is the well still producing? The lease ended in 1979 and the court affirmed that. If there is no production currently then you should be able to lease as you wish. If it is still in production and you are unleased, my next question is are you receiving royalties and ifso how are they calculating them?
A new lease was signed in 2000. A gas well has produced since 2001. In 2013 there were 8 months recorded by RRC of no production. I wrongly thought the well had been pooled yet never recorded within the primary term. (which it wasn’t ). I was right in that the Unit designation wasn’t recorded till just a few month ago, but their claim is that the well is HBP by its own production and not being held by the pooling clause. They are asking the 6 in my family who hold the executive rights (with no royalty ) to sign “ratification of pooled Unit” now. Our thought is that by pooling now, they can continue to hold our leases without even drilling another well. Not exactly in our best interest. It may seem we are being rather distrustful of them, but that’s the world we live in. Maybe it is "just a formality " as they told us. Maybe it gives our approval to something they’ve already done which they didn’t have the authorization to do. We are looking into matters further. Thanks
I don't believe that they can fix things with pooling after the fact. If the lease ended with the cessation of production for 8 months, pooling with other well/s or resuming production would not change the fact that the lease had expired on it's own terms should they have not saved the lease by some other action such as paying shut in royalty. I think they need that ratification, it would be you saying that what they have done is ok with you, breathing life into a dead horse.
Kinda what we are thinking. I’ve talked recently to both the landman and a representative from the producer. They both affirm that we are HBP. I didn’t address the 8 months no production or whether they had been paying the shut in royalty. At the time I talked to them I wasn’t aware of the lack of production and didn’t think to ask about the shut in. Evidently that would be paid to someone else. It’s pretty obvious it’s going to take an attorney to sort things out since I’d think the burden of proof is on us. I can’t picture them just relinquishing anything unless pressed to do so. And it seems they have an out for everything. With the 6 of us having a little different approach to handle this, it may yet take us a little time. Some want to just wait and see how bad they want or need our signatures, others like the idea of immediately contacting a lawyer. You’d think if their was any realization on their part that the lease has ended, they would be afraid to do much till all our paperwork was in order. I did call the RRC who told me those numbers were certified and also that there is no new drilling permit that has been issued.
I’m new to this so forgive me here. What I’d like someone to tell me is WHY they want to to pool now?? The existing well, from appearances of production, has about run it’s course. It seems there is no immediate plan to drill, with no permit having been issued. So what exactly are they pooling by asking to pool the unit? Is it the old well (existing well)? Is it our leased acres to hold them HBP?Is it done in anticipation of another well so that the pooling is already in place? Could it have to do with some new requirements with a horizontal well? Or all of the above?
They may want to pool you now because they won't be able to keep you HBP at some point in the near future, and for anticipation of future production within the unit, but not necessarily on your tract. Also, they may see having a pool (with your tract included) as being more valuable to flip the lease later to another operator sometime in the future. That doesn't answer all of your questions but I'm sure they want to pool because it will be more valuable for the lessee, even if that value isn't realized until later.
Thank you. Or theyy are interested now in having the ratification of pooling made effective to first date of production because they paid royalties from a pooled well that was in effect not really a polled well till the date of recordation made in the county 13 years later. Not sure what that might mean for any operator of a producing gas well, but that is exactly what’s happened in our case. Probably not a everyday occurrence.
If the well on your lease is about spent, they could be operating it at a loss just to hold your lease by production. They don't like operating at a loss. Getting ratifications so they could stop operating at a loss and stiill hold the acres by pooling them with a producing well would be alot cheaper than operating at a loss for years or making a new lease agreement, with new bonus and possibly higher royalty.
Well, whatever it is they hope to attain, it’s not happening with the 6 of our signatures. Period. Wishing and hoping by them isn’t going to get what they want or maybe even need.
r w kennedy said:
If the well on your lease is about spent, they could be operating it at a loss just to hold your lease by production. They don’t like operating at a loss. Getting ratifications so they could stop operating at a loss and stiill hold the acres by pooling them with a producing well would be alot cheaper than operating at a loss for years or making a new lease agreement, with new bonus and possibly higher royalty.
Tony that is a good point. No matter what, it sounds like you are better off to not sign anything unless it is a new lease, provided the provisions are good to protect you for issues like the one you just mentioned. I still think they just want the ratification for a reason to claim you are still held under the original lease. Signing the ratification could subject you to liability for royalties that may have been paid incorrectly, as you mentioned. Maybe that’s their reason, but they don’t think they can hold you accountable without that ratification.