Is there a time limit an operator must drill addtions well in unit?
operator drilled a Travis Peak well 4 years ago in a 500 acre unit. Travis Peak spacing is 80 acres ( room for 6 TP wells) . The Well has made about 750 mmcf to date and the EUR is about 2 Bcf for well. The lease says "after completion of a well capable of producing paying quantities hereunder, Lessee shall drill such additional well on the leased premises or lands pooled therewith as a reasonably prudent operator would drill under the same or similar circumstances to develop the leased premises as to reservoirs then capable of producing in paying quantities on the leased premises. There shall be no covenant to drill exploratory wells except as expressly provided herein."---------------------------------------------------------------------- question is what time limit to drill addtional wells, I understand the well has to be expected to make profit, but what is the ROI need to be prudent operator? with Nat Gas at $3.75 now and expect over next few years to increase at least to $5-6 range over a 20 year life of a Travis Peak well that cost to drill < $1 Million the ROI is good. How do you defind Reasonably Prudent
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Replies to This Discussion
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Permalink Reply by Ben Elmore on -
Adubu,
There is no hard and fast definition of an RPO. It a case-by-case determination made based on the facts existing at the time.
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Permalink Reply by adubu on
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Ben-- thanks for reply. If it's case to case determined on facts existing please use the above production facts above for your opinion on forcing operator to drill another well. What other facts needed ? Thanks
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Permalink Reply by Ben Elmore on
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The problem is your theory is based on the assumption that gas prices are going to rise in the future. Under the law, that is too speculative, even if Warren Buffet is your expert. Our appellate courts would never allow it IMO. Most failure to develop cases of this type rely on past gas prices and that based on those prices an RPO would have drilled another well.
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Permalink Reply by adubu on
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Ben--thanks for reply-- so in your opinion an RPO would already have drilled at least well #2 in the unit. If that is your opinion what should royalty owners in unit do at this time? Have I read your comment correctly?
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Permalink Reply by Ben Elmore on
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No, IMO it is a difficult case to make that, given low gas prices the past 4 years, an RPO would have drilled an additional well or well(s), because of the economics.
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Permalink Reply by Andrew on
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One indicator of "reasonable prudence" is expectation and likelihood of making a profit for the operator. If infill drilling wouldn't be profitable with the same production numbers as the existing well I'd say no reasonably prudent operator would drill it. You will have to wait for it to be a win/win scenario for you and the operator for any new wells, IMO.
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