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Permalink Reply by Steve P on April 25, 2018 at 5:48

I own mineral rights in S2 T11N 15W, part of a block of deep rights Comstock obtained from BP many years ago.  Most of the units are held by an assortment of Hosston or old Petit wells.  The owner/operator of these shallow wells has been turning over almost annually in the past few years.  It is questionable if those wells are producing enough to meet the standards set in the Mineral Code to continue to hold a lease.  Comstock has actually been filing drilling permits every six months in my unit.  

I have been encouraged by others on this Site to demand a release of the lease from both Comstock and the current shallow rights owner for failure to produce in paying quantities.  The operator would be hard pressed to argue that the wells haven't "paid out" since they were drilled more than 15 years ago. 

Comstock is very active in drilling in DeSoto now, and has been for many months.  The deep rights they hold line up almost perfectly for CULs since their ownership is a string of units along the southern units of 12N 15W and the northern units of 11N 15W.  We need to get Comstock's attention to begin moving into our area.

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Permalink Reply by Dion Warr, CPL on April 25, 2018 at 12:41

Jon W:

First - what Jay said ^.

Second, if, similar to what Steve P has offered below, the operator already holds (or believes that it holds) viable leasehold in the unit(s) in which the proposed wells were to be drilled, filing for well permits would indicate a plan to drill and develop the target formation, which could be used to thwart an attempt to dissolve the existing leases.

Old marginally productive leaseholds are typically attacked along three main lines: (1) the operator has failed to fully develop the lease(s) in question, (2) the operator has failed to adequately develop at certain zones or formations commensurate with other development at said zone or formation / alternately, a failure to protect from drainage from offsetting wells, and/or (3) failure to produce in paying quantities.

The defense of a lessee / operator would be set along these grounds: (1) acting as a reasonable and prudent operator (great latitude usually given by courts unless otherwise limited or restricted by the lease), (2) protection from offsets inapplicable due to either operation of the adjoining leasehold (mitigates the attack in that a common operator of adjacent leasehold would simply drill within the questioned unit if it was reasonable and prudent to do so), and/or reliance upon the lease terms and/or expertise to determine when an offset would be required, and (3) demonstration of paying quantities by submitted information.

The appellate court composed a six-part test as a "go by" for attempting to determine production in paying quantities if memory serves, and also if memory serves that test was memorialized somewhere on GHS.  It is important to understand that courts have been somewhat liberal in allowing for short period of non-profitability but frown upon extended periods of nonprofitability - and the courts do not make a determination of "how profitable" is considered "paying quantities".  In addition, per the Mineral Code, "dissolution of the lease is not a favored remedy".  However, if recent activity is of any indication, courts have treated lessee / operator conduct which involves "holding leases" merely to retain the leasehold for some other purpose than effecting good-faith and timely drilling, development, and production in paying quantities (ie., waiting for a potential deal via farmout or assignment to a third party) and preventing the Lessor to otherwise market his interest to other potential Lessees, courts have treated that somewhat harshly (see Gloria's Ranch, L.L.C. v. Tauren Exploration, Inc., et al), even to the point of bringing lender liability back into consideration.

In any event, any and all of these attacks would in practice require a substantial demand on the part of Lessor for release and/or a development plan, and then subsequent filing of suit to redress the issues.  Each case is determined upon its unique and specific set of facts.  Lessees and operators are averse to releasing leasehold on the whim or request of Lessor unless the lease is truly expired and no production is being obtained.

As to the persistent reacquisition of permits - as long as Operator wants to pay the fees, they can keep obtaining permits.

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