Replies to This Discussion

Permalink Reply by Jed on December 4, 2008 at 6:23

One unscrupulous operator drilled a well in DeSoto P. and told the wireline co. to get him a few cubic feet so he could hold the lease. He did just that and shut the useless well in. This is common practice, especially by these small time crooks who plan on selling out as soon as they can. "Paying quantities" is a joke and needs to be changed immediately.

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Permalink Reply by The_Baron on December 4, 2008 at 6:26

This is a situation that can be addressed in your lease. Define paying quanities.

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Permalink Reply by Bobi Carr ("parker") on December 4, 2008 at 6:30

When you are subject to an existing lease, what is the criteria that is used?

Does it need to be a % of the cost of the well over a specifice time period?

Are there some basic guidelines? Or is it only established by case law?

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Permalink Reply by The_Baron on December 4, 2008 at 6:40

not guidelines i'm aware of....Maybe KB can find some case law.

However,
If the well is shut in, rentals would be due to maintain a lease past the primary.
In the case of old wells just making it, might have to go to court, I have heard of wells making a barrel a day holding leases.

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Permalink Reply by Grillin' - MmmMmm on December 4, 2008 at 7:19

1 barrel a day nets you about $37 after royalty (1/8) and severance taxes. Most folks would tell you it cost about $5-10 a barrel to operate. At small volumes, mayber more/maybe less. But paying quantities means the well is profitable I would guess. And I can't imagine this issue hasn't been in court a few hundred times. But HBP can be continued with very very small production volumes.

Now, the wireline approach, that's a pretty easy one to get thrown out.

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Permalink Reply by charles billingsley on December 4, 2008 at 6:47

One thing you can add to your Exhibit A is a sentence that sets a minimum monthly royalty payment. That can be negotiated with the Lessor.

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Permalink Reply by Bobi Carr ("parker") on December 4, 2008 at 7:57

KB,

I know from personal experience. I have 2 acres hbp that I get about $25 a year on (when I am lucky). But it is a Cotton Valley well. I know these are less expensive to drill.

I just wondered if the cost of the well plays into the consideration of what paying quantities must be. If so, maybe I could maybe expect $50 per year to hold a bad HS well.

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Permalink Reply by The_Baron on December 4, 2008 at 8:05

Most operators would not operate a well unless it was making some profit. And KB, before you jump onme, i said most. There are some who will hold onto a well that is losing money each monh because they hope to further develop the leasehold, rework the well, etc....

But....now it seems that holding on to the leasehold may be advantageous if it includes the HA shale rights.

All that being said, a reasonable operator is going to try to make a profit.

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Permalink Reply by The_Baron on December 4, 2008 at 8:32

I agree, They best option for a landowner who feels that they are being HBP by a marginal well, would be trying to prove that the operator is not developing the leasehold. This is somthing that would most likely go to court.

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Permalink Reply by insomniacnla on December 4, 2008 at 8:03

Here is what Chesapeake agreed to in my OGML but it still does not mean that I would be released from the OGML without a lawsuit.

"17. That production in paying quantities shall be defined as production sufficient enough to pay for all costs associated with operating and upkeep of the well including servicing, reworking, pipeline fees, maintenance and repair."

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Permalink Reply by The_Baron on December 4, 2008 at 8:34

Is this the entire clause?

My first take is "over what period of time"

Can they take the past few years of income and expenses? or is it by quarters?, months?

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Permalink Reply by Grillin' - MmmMmm on December 4, 2008 at 10:47

Agree with Baron. That clause still leaves a lot to be argued about. What it does, though, is define what items should be included and not included. operating expenses, maintenance expenses, etc. are included but drilling costs are not.

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