Getting paid on extension

Three year lease was up before well went on line and did not receive payment on 2 year extension. What should happen now?

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Permalink Reply by Skip Peel - Mineral Consultant on December 9, 2011 at 12:24

If the well was spud within the primary term of the lease there is no requirement to exercise the option to extend as long as operations are continuous.  That legal definition of continuous operations in the case of horizontal wells drilled prior to lease term expiration but not completed (fracked) prior to expiration has not been established through litigation.  The operator will claim continuous operations and you have the option to file suit.  I wouldn't suggest that course as likely to be successful given the pro-business bias of the courts.

Permalink Reply by Greedy Landowner on December 9, 2011 at 16:17
Hopefully you will get a nice long term royalty payment from a well drilled and completed hole in the ground! However if there were drilling operations in progress at the end of your primary lease term then you cannot from a legal perspective expect an additional payment for an extension. If you google Garenflo you will find an interesting case regarding this issue.
Permalink Reply by kittycatmama on December 9, 2011 at 17:07

speaking of extensions. We got a great bonus in Oct. 2008 in Caddo. No permite for that area.It was a 3 yr. lease. Then last year Chesapeake came to us wanting to lease more property that we acquired in the area. That was a 5 yr. lease. They have an option to lease again, but price was $16500 an ac., so doubt they want to pay that. Will they just let it expire

Permalink Reply by Greedy Landowner on December 9, 2011 at 17:43
The price per acre on the extension should be the same as it was for the original lease. For you and I that amoun might seem an amazing amount however for a company that size it is like paying a light bill. I am assuming you werent contacted about the extension so it might be a good idea to ask them via certified mail to declare their intentions regarding your minerals.
Permalink Reply by kittycatmama on December 10, 2011 at 1:44

Don't they have the option of letting lease expire and coming back at a later date and negotiating a new lease?

Permalink Reply by Spring Branch,mineral owner on December 10, 2011 at 2:35
Of course they do, but at expiration another Operator could attempt to
 lease the the property.
Permalink Reply by The_Baron on December 12, 2011 at 4:09

I doubt they will pay the same bonus. CHK has made it a policy to just carry many of these interests as UMI and hose them later.

Permalink Reply by kittycatmama on December 12, 2011 at 4:35

I am an UMO with Chesapeake. I didn't choose for it to be that way, but the day we were to meet with the Chesapeake rep a couple of yrs. ago, he called & said we are not going to lease anyone else in that section. This was a small acreage & we had the fair offer from them, so we were not even negotiating. SO, I thought this is an opportunity to go UMO & learn. We did and we received our 1st ck last month. Chesapeake has emailed me when I requested info. So far so good. I am used to dealing with Petrohawk which has been OUTSTANDING customer service, so didn't know what to expect from Chesapeake. I would really welcome the opportunity to go UMO on this other piece of property that Ches. has let expire

Permalink Reply by Robert Griffin R on December 12, 2011 at 5:27

KCM,

Could you please share with us the well number for the UMO check you received last month? Thanks.

Permalink Reply by Greedy Landowner on December 12, 2011 at 8:09
A well constructed lease would have stipulated the same payment for the extension. It does shed some light on just how expensive it is on the operator. Drilling and completion cost are betewen 11 and 12 grand per acre, plus up to a 20 grand per acre lease payment. Takes a long time for one acre to produce that kind of return!
Permalink Reply by The_Baron on December 12, 2011 at 10:50

I don't think you will see that much bonus per acre for a long time, especially now that gas is about to drop below $3

Permalink Reply by kittycatmama on December 12, 2011 at 12:15

it does stipulate that the same payment will be required to extend the lease;however, doesn't the gas co. have the right to no extend and just allow the lease to expire? Maybe I am mistaken

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