What happens if a well is shut in beyond lease terms?

If a lease was signed in late 2008 with a three year primary term.  A well was drilled and completed a few months after the primary term.  No lease extension was executed.  A pipeline was never put in place.  Sonris shows the well status 36 and waiting on a pipeline as of 2/2/2012.  Shut in payments were paid the last two years.  The lease was written by a oil and gas attorney and included

"LESSEE cannot hold this lease under the shut-in royalty provision for more than two (2) years in aggregate beyond the-primary term of this lease or any extension thereof."

It is now over two years past the primary term.  The well pad is on the property of the land in question.  Is the lease still in effect?  Who owns the well?  Any thoughts from the experts other than go see an oil and gas attorney.

Thanks in advance.

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Permalink Reply by Andrew on January 20, 2014 at 22:53
After a maximum shut-in period elapses, a well would have to be producing in paying quantities to maintain the lease in force. While that appears to be what you've described, it is important to note that there may be some other form of savings clause in the lease that has been triggered, so the entire lease terms and well history should be reviewed by an attorney (sorry, I couldn't resist).

When a Louisiana lease expires, the wells on the land become the property of the land owner, or possibly the mineral owner if they are different people. The lessee usually has the right under a standard lease to remove any equipment from the leasehold he installed, but under certain circumstances the landowner can take ownership of the equipment if the lessee doesn't remove it in a timely manner.

To end on a more practical note, unless the lessee deliberately allowed the lease to expire and has written the well off, he can be expected to fight tooth and nail to save the lease in court.
Permalink Reply by Skip Peel - Mineral Consultant on January 21, 2014 at 4:55

Generalized questions such as yours get the "go see an attorney" response for a reason.  It is difficult if not impossible to give an accurate and complete answer regarding lease terms without the opportunity to examine the language in the lease. 

1kw6x71km1v37Permalink Reply by 1kw6x71km1v37 on January 21, 2014 at 7:50

I don't see where the lease in question can be saved, given the information we have above. What usually happens with expired leases is the fee owner gets an unsolicited rental payment in the mail. If you sign and return it, the lease is back in force. Most people can't resist the money. Anyone who frequents this board, however, might just want to renegotiate the terms of lease.

On sure indicator of the operator's intentions is whether or not the well was cased and is that casing still in the ground. And if you see a christmas tree attached to that casing, you might should rough out some ideas for a new lease just in case.

Permalink Reply by Paul M. Hernenko on January 21, 2014 at 8:58

Your consistent no BS answers to valid questions are greatly appreciated, Mr. Cheap Shot. I do not have to wonder who is "sponsoring" your answers. Every one with sense knows to take free advice with a grain of salt and consult an attorney with a true track record for lessees, but the tone of your answer always rings true and not beholden. I wanted to let you know now that I can do so.

1kw6x71km1v37Permalink Reply by 1kw6x71km1v37 on January 21, 2014 at 13:53

Appreciate the compliment, sir. Thank you.

Permalink Reply by Brian on January 21, 2014 at 14:06

Skip, I was looking forward to your reply.  I thought I was very specific in my question including an exact cut and paste of the wording from the lease.  I don’t own the land so going to a lawyer is not the right answer for us at this time.  My wife does own a few acres in the section which are covered by the same lease so I do have a real interest in the outcome.

I was hoping that some of the experts might comment on potential scenarios that I might have missed in the lease.  It seems straight forward, but I am not a lawyer.  For the past couple of years we knew this deadline was approaching and always assumed they would wait until the last few days to put the pipe line in place.  They paid us several years ago for the right to put the pipeline in place.  Today I am starting to think someone just doesn’t realize the language in the lease had a two year shut in limit.

I appreciate all of the comments so far.  The last couple of shut in payments were in April so I guess we will wait and see if they send another one at that time.

Cheap shot, I have not been to the well pad in a couple of years.  It might be worth a trip.

Permalink Reply by Skip Peel - Mineral Consultant on January 21, 2014 at 14:48

Brian,  many boiler plate lease forms contain language other than that related to shut-in periods and payments that can maintain the lease in force.  These clauses can be lumped under the heading of "operations" and can define what constitutes operations and how long operations conducted after expiration of the primary lease term can maintain the lease.  All of us who deal with lease language have seen numerous variations on the theme.  However in addition to the lease form language there is often additional terms contained in an Exhibit A.  Even if we were to know the specific form number of your lease, and therefore the specific language, we wouldn't know what is in the Exhibit A.  Not only is it impossible to give an accurate assessment lacking that specific information, the information that is provided leads me to believe that there will be follow up questions as to the avenues that a lessor could pursue to void the lease.  That discussion should be with an experienced O&G attorney.   Most of the industry members want to provide accurate and helpful replies to questions like yours however each incident is unique.  It is always helpful to post the well serial number or well name and section-township-range.

Permalink Reply by Aubrey C. Sanders, Jr. on January 21, 2014 at 15:04

I wonder how many people have ever read lease in it's entirety. If so did they have understanding of each and every word.

Forever I have told people who sign a lease that this just might be most important document you will ever sign as it may affect a number of generations.

Permalink Reply by Two Dogs, Pirate on January 21, 2014 at 15:07

Many lawyers don't understand the language of a lease form.

Permalink Reply by Brian on January 21, 2014 at 15:12

Thank you again for the reply.  I should have pasted the entire clause that came from the Exhibit B of the lease

7. SHUT-IN ROYALTY TIME LIMITATION: Notwithstanding any wording in this lease to the contrary, the shut-in royalty provisions provided for in this lease shall not be effective, and LESSEE cannot hold this lease under the shut-in royalty provision for more than two (2) years in aggregate beyond the-primary term of this lease or any extension thereof.

The leased was written by an experienced O&G attorney.

Permalink Reply by Two Dogs, Pirate on January 21, 2014 at 15:17

Brian one clause doesn't  tell the  whole story. Other clauses may provide additional information, that is why a professional needs to look at the whole document.

Permalink Reply by Andrew on January 22, 2014 at 14:46
Brian,

Like Skip and TDP mentioned, the only real way to get a picture of a situation is to consider a lease in its entirety. That's the kind of judgment that an attorney would have to provide.

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