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Permalink Reply by Andrew on August 9, 2012 at 19:07

Before I go any further, I reiterate that I would contact a qualified attorney about this matter immediately. 

As to some of jkw's comments, I have to respectfully disagree. 

Obviously, these comments were based on the assumption that an operator would not release rights to their wellbore (which would effectively surrender their investment in that well), and the Lessee in this case was not the operator. Given those reasonable assumptions, much of these thoughts are on point.

However, two things bear pointing out (more to differentiate than to differ). First, 30:10's amendment accomplishes a much more important role than protecting the "small lessee," although it does accomplish that. Much more importantly, it provides a legal mechanism for better ensuring that the innocent mineral/royalty owner is paid royalties when their Lessee does not consent to a well election. In this respect, it is really the mineral owner who is being protected, and the small Lessee benefits as a consequence.

Second, I disagree that being relieved of the costs of drilling in this situation would unfairly burden the operator. Were the Lessee in this case NOT the operator, and they relinquished the rights after commencement of operations, it would be the Lessee who would have to bear the burden of paying the costs at least to the actual time of the release (not some fictitious retroactive time), not the operator. Thus, the lessee who releases a lease after commencement of well operations does so at the expense of forfeiture of his sunk costs to that point. That is the logical and equitable way of resolving the situation: a Lessee should not be allowed a chance at producing a great well (and then holding the lease by production), while still given the option to walk away from the lease if it does not go well and recover its costs at the expense of the innocent mineral owner who contracted with him. 

Another factor which led to my comment that the mineral owner in such a case may be entitled to be freed of the costs is that, in effect, this mineral owner has now been force pooled without being given adequate notice and the opportunity to elect to participate prior to drilling. In that situation (just as when a UMI is not notified by title error or oversight), as a UMI they would be entitled to an accounting of well costs and production data upon demand within 90 days of completion of the well. See La RS 30:103-103.2. If the correct steps are taken and the operator fails to comply with UMI demands in a timely fashion, the UMI will be freed from ALL liability for its share of production costs.

And again, this situation is bizarre, and I would contact an attorney immediately if I was in this position. 

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Permalink Reply by drillbit on August 16, 2012 at 4:07

To help control a would-be lessee (especially if you intend to have a horizontal pugh clause in your lease) and avoid finding yourself in a situation like the one described in this discussion, I would strongly recommend that a mineral owner have his/her attorney consider including in Exhibit A something similar to the following:

 

PARTIAL RELEASES: Lessee may any time during this Lease release from the lands covered hereby any lands or mineral horizons subject to this Lease and thereby may be relieved of all obligations hereafter accruing as to the released acreage or interest, provided that (a) Lessee may not release any portion of this Lease included in a pooled unit while operations are being conducted on such unit, and (b) any such partial release must release all depths in and under the lands released.

 

RELEASES: Should Lessee release any part or all of this lease as allowed herein, such release shall not be effective until (a) the release has been filed for record by Lessee and (b) a copy of said filing has been delivered by Lessee to Lessor by certified mail.

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Permalink Reply by Andrew on August 16, 2012 at 4:26

Thanks for sharing drillbit. Something like that may do the trick.

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