Replies to This Discussion

Permalink Reply by Lorissa Gail on June 3, 2010 at 3:02

I certainly know little about o/g matters and am very interested in the answer to this question. That said, is some of shut-in requirements covered by your lease agreement? Also, it is my understanding that if you have a well then the lease remains in play as long as the well exists! I have read that a lot of old wells from the 30's etc. are still held by the original lease! In pondering that issue, maybe there should be a timeline for production and lease agreements and a way to re-negotiate! Infinity is a long time! I would imagine that will never happen!

Permalink Reply by DJG on June 3, 2010 at 4:27

Many of the O&G's standard contracts have the shut in compensation set at $1.00 per year.

This is, however, a negotiable point when you are working out your lease terms. Suggestion is to definately set a limit as to the amount of time that having the well shut-in can hold the acreage HBP. Generally you should not have much push back from the O&G that the shut-in periods should not hold the lease for any period longer than 2 years aggregate time. (i.e. not necessarily continous months of 2 years, but the total sum of any multiple shut in periods should total no longer than 2 years). You can try to limit it even further. Does not hurt to try.

Pretty standard terms on recent contracts are for $25/acre per year - but I have seen recent contracts where the O&G's have accepted $50/acre/year and even one where they agreed to $150/acre/year.

Generally, the shut-in would most likely be used in the event that your area is waiting on pipeline or - perhaps - the well get's shut in because the price of NG drops to an unecomic level. In that later case, as a mineral owner, I would actually be happy for the well to be shut-in so as to not sell my gas for pennies.

Permalink Reply by Lorissa Gail on June 3, 2010 at 6:21

Thank you for the answer D. Gaar! Let's hope that all the shut-in's in Shelby County are due to hanging on to gas for better prices or for developing better wells!

Permalink Reply by king john on June 3, 2010 at 7:51

good explanation david. i would emphasize that the motive behind having a time limit and also a high per acre rate for shut-in is to discourage them from doing it. not that long ago, the shut-in payment was $1 per acre, per month and the standard royalty was 1/8.
good to look at the past to have a greater appreciation for the future ...
kj

Permalink Reply by king john on June 3, 2010 at 7:54

bill r. , your lease should clearly state what the shut-in payment rate and conditions are.
kj

Permalink Reply by Les Bamburg on June 3, 2010 at 15:46

DG, I do not think shut-in payments are allowed for economic reasons. Of course the operator could try to amend the agreement to cover such an event.

Permalink Reply by king john on June 4, 2010 at 2:47

les, could you elaborate on the following statement of yours..

" I do not think shut-in payments are allowed for economic reasons"

i am not familiar with shut-in payments being dis-allowed.
kj

Permalink Reply by Les Bamburg on June 4, 2010 at 3:10

KJ, under most lease agreements the operator can only hold a lease after primary term (including renewals) by having production in paying quantities. Identified exceptions are lack of market or marketing facilties. Low natural gas prices does not constitute a "lack of market". So typically shut-in payments should only be available as an option when the operator is waiting on a pipeline or treating facilities.

"...and should Lessee be unable to produce said well because of lack of market or marketing facilities or governmental restrictions, then Lessee's rights may be maintained beyond or after the primary term without production of minerals or further drilling operations by paying Lessor as royalty One and No/100 Dollars ($1.00/acre) per acre per year..."

Permalink Reply by king john on June 4, 2010 at 3:12

les, i understand your statement now. thanks for clarifying.
kj

Permalink Reply by Bill R on June 4, 2010 at 17:41

I read through my lease agreement, it does not give much detail other than any 'shut-in' compensation will be paid out per standard practices. It also sounds like that once they pay us one time, the lease does not have to renewed until ?
I guess that leave a little leeway in what/how they pay about the size of the Grand Canyon. I like the idea that the wells are staying 'shut-in' awaiting for the price of NG to go up.

Permalink Reply by king john on June 7, 2010 at 14:57

bill R., whats going on with your lease and who is it with?
kj

Permalink Reply by Bill R on June 7, 2010 at 16:12

It is Atoka Operating, Inc. out of Addison, Texas.
Do not know much about them... Cannot find out much more than that either... Internet does not have much on them... unless someone there knows something about them...
We have tried Phone, Email, and Snail Mail... no answers or reply... only thing I ever have gotten from them is my $1check via Registered/Certified mail.
We have some other ones with O'Benco (O'Brien), however still have not gotten anything, but at least they talk to us and say that we will have a check in the mail soon.

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