"Paying Quantities" As pertains to Oil Production

Regulation
1

Dear Friends,

I recently saw that some of my wells are pumping 1 Barrel a month, 11 Barrels of Oil per year. Now I'm curious in my Producers 88 Lease, it says:

( 5. Except as provided for in Paragraph 3. above, if Lessee drills a well which is incapable of producing in paying quantities (hereinafter called “dry hole”) on the leased premises or lands pooled therewith, or if all production (whether or not in paying quantities) permanently ceases from any cause, including a revision of unit boundaries pursuant to the provisions of Paragraph 6 or the action of any governmental authority, then in the event this lease is not otherwise being maintained in force it shall nevertheless remain in force if Lessee commences operations for reworking an existing well or for drilling an additional well or for otherwise obtaining or restoring production on the leased premises or lands pooled therewith within 90 days after completion of operations on such dry hole or within 90 days after such cessation of all production. If at the end of the primary term, or at any time thereafter, this lease is not otherwise being maintained in force but Lessee is then engaged in drilling, reworking or any other operations reasonably calculated to obtain or restore production therefrom, this lease shall remain in force so long as any one or more of such operations are prosecuted with no cessation of more than 90 consecutive days, and if any such operations result in the production of oil or gas or other substances covered hereby, as long thereafter as there is production in paying quantities from the leased premises or lands pooled therewith. After completion of a well capable of producing in paying quantities hereunder, Lessee shall drill such additional wells on the leased premises or lands pooled therewith as a reasonably prudent operator would drill under the same or similar circumstances to (a) develop the leased premises as to formations then capable of producing in paying quantities on the leased premises or lands pooled therewith, or (b) to protect the leased premises from uncompensated drainage by any well or wells located on other lands not pooled therewith. There shall be no covenant to drill exploratory wells or any additional wells except as expressly provided herein.)

So I'm curious to what you think they will say is Paying Quantities, Where it would be to me more reasonable to have the Land back for new drilling. Surely they can not even operate the well for 1 barrel of Month?

Thanks for you opinions in advance!

Chris Wilson

2

I think the “or if ALL production ( whether or not in paying quantities ) permanently ceases”. 1 bbl a month it hasn’t ceased. 1 bbl a month isn’t paying them anything but probably allows the operator to hold your lease in reserve and he may assign it to someone else for money or other consideration in the future. I think there is still some value there in the operators eyes. Sad to say, I don’t think you can do anything about it.

3

Dear Mr. Wilson,

Out in West Texas, there are operators that are notorious for reporting 1bbl per month to the RRC, just to hold a lease. He was finally busted when the valves were rusted shut.

There are two landmark Texas decisions on production in paying quantities. One is Clifton v Koontz and the other is Garcia v King.

Here is the answer per the two cases:

1. Did the lease yield a profit over a reasonable period of time, after deducting operating and marketing costs, and

2. Would a reasonably prudent operator continue to operate the well in such a manner for the purpose of making a profit or merely speculation.

However, the savings clause that Mr. Kennedy pointed out gives me heartburn. My inclination would be to go out to the location and see if the valve is rusted shut.

Don't know where your minerals are located, but there is your jumping off point.

4

Thanks Buddy,

I have always wanted to find my leases, and this is a very good starting place, Their in Ector, Crane and Andrews, the Largest being Conoco's Penwell Field, and Shafter Lake in Andrews.

Thanks again,

Chris Wilson

5

I did some further checking after your kind replies and Endeavor Energy is the Operator and A Stephens is the President and he is one of the operators that was busted by the State for what Buddy Said. So looks promising, I will keep you in the Loop.

Thanks for your imput,

Sincerely,

Chris

6

This came out as I recall during the airing of Black Gold, a TV series about some Endeavor drilling wells in W. Texas. Thanks for keeping us up on this drama. I am really interested now.

7

What can be done, if anything, there is a oil well that was drilled years ago on my in laws land, in Martin Co. TX and they never made a well out of or cleaned it up, it's just there. Is there something my husband and his sister can do about this. It was Endeavor he tells me.

8

Dear Sue,

If no well was brought in, and the lease time has expired, then its your In Laws again to release. I have had a couple of those. They will just have to wait till an oil company contacts them.

9

Thanks Chris.



Chris Wilson said:

Dear Sue,

If no well was brought in, and the lease time has expired, then its your In Laws again to release. I have had a couple of those. They will just have to wait till an oil company contacts them.