We received this letter with our April Royalty Payment. Input please your thought, opinions and professional experience appreciated! My thought is Oil and Gas prices have been deflated several years now so deflated prices are not the whole not at the root of the whole issue here. However the construction industry never missed a beat and neither did the trucking industry. So I’m on the fence as far as their excuses. I wonder if it’s to their advantage to attempt to shut in Wells the leases clearly say must be in production for them to hold the lease. I am consulting with a number of professional about this as well but have found in the past 10+ yrs GoHaynesvilleShale offers many times some of the best information and leads into what’s going on I’ve found. The letter is attached below. I tried to get it to post below this and it would not.
For clarification, Gale, Valence Operating is declaring Force Majeure for wells in Texas? If so, that may inform any replies you may receive regarding the legality question. To potentially reach more Valence royalty owners, you might consider posting in the specific county or counties where the company operates by using the GHS group pages. When you do that each group member receives an email alert to your newly posted discussion.
If Valence is paying royalties on wells operated by another company, it would be helpful to know that as it may help to reach out to others similarly situated. Valence is not reporting any operated wells for Louisiana.
Thanks Skip, I will post this in the county.
Whether you call if Force Majeure or something else, shutting in wells over the past couple of months has been the norm for many operators in the US.
Permian Basin production has been drastically shut in my many operators. Lack of market (can't sell what you produce if no one wants to buy it), lack of storage, ultra low prices, etc. has all contributed to this.
A question to ask yourself - do you want operator to keep producing full bore and only get paid 20% of what they were getting for oil a few months ago? And therefore only paying royalty owners 20% of what they had been receiving?
Or shut in / choke back the wells to keep the oil in the ground for better pricing (note oil prices were close to $39 at close on 6/5)?
I have already seen some notices that Permian operators are starting to turn wells back on.
Side note - even HBP acreage where production is on leases that are past primary term, operators can use "shut in" clauses from the lease to keep wells non producing for "x" amount of time. Or only produce for a few days to maintain oil production for the month.
I don't believe any lease stipulates that a well must be producing continuously to maintain the lease via HBP operations.