Reeves County Lease Issue

Texas Mineral Rights Reeves County, TX
1

When I purchased some mineral rights in 2007 there were 3 parcels that were currently under one lease agreement including all 3 parcels with no Pugh Clause or a Continuous Drilling Clause. The lease was set to expire in May of 2010 (I was hoping it would). Before the lease term expired the lessee (Chesapeake) farmed out each of the 3 parcels to 3 different oil companies. One well was drilled and now all 3 parcels are held by production. Two of the parcels, held by 2 different oil companies, have not been drilled on. So, I have one parcel being held by production from a well drilled and the other 2 parcels are held forever by production by companies that have not done anything to enjoy/earn their status as being held by production.

So, my question is: What, if any, recourse do I have to get these 2 parcels released back to me?

I have heard of a "covenant to develop" that may be useful to get the leases released. The one well was drilled in 2010 (just a few months before the lease was set to expire). I have been sitting here for 6 years and no development has occurred, when I could have had wells drilled or could have leased the minerals for two 3-year terms. This has cost me a ton of money considering that the 2 parcels total 240 NMA's and an average (?) going rate of $3000/ac for the signing bonus.

Any thoughts ???

Mike

2

Mike,

When you say farmout, do you mean they are assigned outright (no term-no limitations), or that they are assigned, subject to a farmout agreement? I ask because farmouts generally have a time limit in which a well must be drilled. If each parcel was farmed out to 3 different companies, but only one drilled. It's possible that Chesapeake (now SWEPI) would have retained the other 2 parcels.

Since a well was drilled on the leased premise, you can't argue they haven't developed, but only pursue an argument they haven't "fully developed", which I'm guessing would be very difficult to do since the lease likely did not contain any sort of protections for the lessor. Assuming this is on variation of a Prod. 88 form, the lease likely includes something like: "This lease is not intended to give rise to any implied obligations not otherwise expressly contained in this lease and any implied covenants not consistent with the express provisions of this lease are hereby negated and renounced". It seems like it would be an uphill battle unless you can prove drainage by offset wells (unlikely). An oil and gas attorney may see it differently than I though.

3

Thanks Mike,

I have some research to do.

Mike