My lease is coming up for renewal in about a week and I'm ready to resign a lease with the company yet I see they're starting to work on putting the road in to where they plan on drilling.
Now I'm wondering if they'll start drilling before the lease is up and that will hold it in production before the current lease expires. At what point is the land considered "in production" thereby extending the lease?
Larry:
You first need to read and understand your current lease agreement. In the past, some operators have conducted operations which in my opinion don't constitute actions which would hold a lease. I wrote a blog on this forum titled "Drill and Run" which explains some of these situations. Good luck and again, read you lease.
What Charles said. The details are in your lease. USUALLY it's a drill bit breaking ground. Putting a road in, isn't that.
Thanks guys. I've looked over my lease and it seems pretty vague. Fingers crossed they don't drill in the next few weeks.
Larry:
I hope that you get your wish but you must remember that these companies are very much aware of these expiration dates and most have schedules in place whereas they avoid having to negotiate new leases. This same scenerio occured on my mineral area approx. 6 mos. ago in Williams County, ND. I had negotiated a great top lease only to have the current lessee drill about two weeks from the expiration date. Hopefully, this will not occur to you and a new lease can be negotiated.
Hi Charles,
They've sent me the lease renewal for my signature and I plan to sign it this week after my lawyer approves it. I suppose if they end up drilling before the expiration then they won't need to pay the bonus.
Larry:
This is really out your control. The only thing you can do is hope that luck is on your side. Maybe their timing will be off and you can take advantage of their situation. I was not that lucky. Good luck.
I think some people will be surprised, but I think that substantial work, building the pad, digging a pit, building a road, drilling a water well is continuing operations. The continuing operations clause is there to save the lessee from loss after they have made an investment towards producing the minerals in the lease and I think the things I mentioned above qualify unless you have specific wording in your lease that requires that the bit breaks ground, possibly with a rig on site capable of reaching target depth, or even more stringent, spud with rig capable of reaching target depth and the right angle turn already having already been made. Some lessees have maintained that pulling a permit or a couple of guys in a pickup staking a pad qualifies, which I think is BS. As the others have said read your lease. I read a lease for someone not too long ago where buried in the continuing operations clause, pulling a permit was considered continuing operations, which brings us back to you can agree to anything, and if you agreed that pulling a permit was continuing operations, then it is. I helped a lady in the last year with NOG who was trying to get her to sign a lowball lease and was also telling her she was held by continuing operations because they built a pad which I think was built more that 180 days before her lease expired and therefore was irrelevant with her 180 day continuing operations grace period. If they truly already had her held they wouldn't be offering to lease her again, they aren't in the business of giving away free money. She eventually leased for more money and royalty than they were offering but they made it hard on her because she didn't understand what they could and could not do. NOG was, I think, in a panic, you really don't want someone with 75 net acres going non-consent in a good area with proven production, and they were willing to pull out scare tactics and say things that weren't true to try to keep the lease at low royalty. I hope this example is of no use to you what so ever. If you can, it may be a good idea to keep an eye on your spacing towards the end of your lease. Good luck and I hope things work out the way you want.
Larry, I would hold off on signing the lease, they won't pay you if they get the well started before the current lease expires. Demand payment before they get your new lease. If they want peace of mind, let them pay for it. You might explore other offers that could pay more than the lease offer you have and signing a new lease could actually delay drilling of your well, depending on when the next lease expires in the spacing and how many acres it's for. At the very least I would make them toplease themselves, pay you a percentage up front before getting the executed lease. Even better if the terms in the new lease are better than the old, you can negotiate the new lease to go into effect immediately and supercede the old lease/ negotiate an extention to the old lease with the particulars changed to the new royalty and the bonus you negotiated, to be paid before you hand them the executed extention. I'm just asking what you are getting out of giving them this new lease? If you are getting nothing, why do it? Your signature on that paper is worth money. If they want peace of mind make them negotiate a new lease that supercedes the old lease and is effective immediately and requires payment up front before they get their hands on your lease. Why give them anything for free? Think about it.
Larry Jonster said:
Hi Charles,
They've sent me the lease renewal for my signature and I plan to sign it this week after my lawyer approves it. I suppose if they end up drilling before the expiration then they won't need to pay the bonus.
Hi RW,
Their offer did include a new bonus and I signed it today since dirt work will begin next week (the lease expires in just over a week).
Now my only worry is if they will still pay the bonus for signing the lease extension even though they're doing dirt work before the current lease expires.
Larry, that was my point, you could demand cash in hand before you give them the new lease. Vhy give them the option of not paying? Larry, I think sending the lease without having been paid first is a bad business decision. Good luck. As for the dirt work starting next week, did a landman tell you that? I have found that landmen tell you whatever they think they need to to get you to do what they want. Keep us posted on that dirt work.Larry Jonster said:
Hi RW,
Their offer did include a new bonus and I signed it today since dirt work will begin next week (the lease expires in just over a week).
Now my only worry is if they will still pay the bonus for signing the lease extension even though they're doing dirt work before the current lease expires.
Hey RW,
We heard from a neighbor that dirtwork would begin next week. Apparently this is common practice.
I did get a bank note with my name on it and the funds listed on it and on the bank note it said "for consideration of executing the least ....." Since executing a lease means simply signing it I can only assume that I will get the bonus even if they are doing dirt work.
Larry, do you mean a draft? Does the bank note say "collection item only" ? The thing is, they could just as easily sent a check, the title work is already done, after all they already had your lease before. Why send a draft and not a check? If that is what you are holding, of course. As for a neighbor telling you that dirt work will be starting next week, I wonder who told the neighbor that?
Hi RW.
Yes a bank draft.
It says "this is a collection item, not a cash item, collect directly through.." then the bank name.
Then it says "consideration for execution of paid-up oil and gas top lease dated..."
I'm not sure why they wouldn't simply send a check. I assume because at the time I told them I was planning to just look at the lease.
Since signing it is "executing" it then fingers crossed it comes through. If not I may need to get a lawyer.
I wish you good luck with that draft. I have never had a draft honored, but it may be different for you.