Replies to This Discussion

Permalink Reply by Doug Boone on March 28, 2014 at 4:22

Well that is my question. The  lease provides for shut in payments to hold the lease for  lack of market.  Doesn't say anything about allowing shut in payments to hold the lease for a science project and that is why I was wondering if they have made any effort to actually hook the well up.

Permalink Reply by Skip Peel - Mineral Consultant on March 28, 2014 at 4:32

Doug, I don't have any information on a pipeline for the well.  What I do know is that SWN can maintain the lease(s) in force by paying the specified amount for the specific period of time stated in the shut in clause regardless of the language about lack of market.  As long as there is no pipeline, there is no market without flaring the well.  I don't think SWN wishes to spend any more money on this well.  They might however want to hold the leases for future wells.  There is so little current activity by SWN it is difficult to guess what their intentions are or what their next move may be.

Permalink Reply by HBP on March 28, 2014 at 4:39

Just to clarify, the shut in clause is specific to its language, so there are scenarios where it has been limited to only a handful of situations and not just allowing it for any subjective reason regardless of language (in fact I suggest limiting shut in for anyone signing new leases). 

This situation may fall into "lack of market" even if an owner feels it is a "science project".  The language of the lease sets the shut-in's parameters.  Some are broad, some are narrow. 

Permalink Reply by Doug Boone on March 28, 2014 at 4:40

Thanks Skip for the info but I disagree that tender of shut in payments can hold the lease without trying to bring the gas to market and that is why I was wondering if they had made any effort to bring it to market.  You have answered my question that as far as you know they have not made an effort to bring it to market.  Thanks again,

Permalink Reply by Skip Peel - Mineral Consultant on March 28, 2014 at 4:46

Doug, unless I miss my guess the amount of time remaining for the shut in period is not of sufficient length for you to take legal action.  You could send a demand letter to start the process and follow up by filing a suit but shut in periods are usually no more than 2 years.  If that is your case the shut in period will expire long before a court would hear a suit.  If another company is interested in leasing your minerals they can simply take a top lease which would become effective on the date the shut in period expires.  If there are no other companies interested in leasing you I suggest that you wait to see what SWN may do.

Permalink Reply by Two Dogs, Pirate on March 31, 2014 at 12:35

Doug HBP is right. Some shut-in clauses can go on for as long as the "March of Dimes" if not limited by the language of the lease.

Permalink Reply by Aubrey C. Sanders, Jr. on March 31, 2014 at 16:15

Well said. It's all in the lease. We have tried to tell others that a lease may be the most important document they will ever sign. It can, and sometimes may extend more than 100 years. I am holding a check for shut-in but I will never cash it.

Permalink Reply by Chad E. Sepulvado on April 7, 2014 at 4:56

Lack of available pipeline is the textbook example of a shut-in situation.  In those instances, courts usually evaluate the price and amount of the production obtainable from the well compared to the expense of connecting the well to a pipeline.  If low oil/gas prices would not justify the pipeline costs to a reasonable operator, courts tend to find the shutting in of the well appropriate.  How long the shut-in situation can last is up to the terms set forth in the lease.   Modern leases tend to limit the shut-in period to two years (be mindful of whether it's two consecutive years or in the aggregate).

"Shutting in" a well for speculative purposes or for running tests (the so-called science experiment) is likely not a valid shut-in situation under the terms of most leases.  The test is lack of market.        

Permalink Reply by Golfoil on March 31, 2014 at 11:13

I thought they were in the process of laying a pipeline that would allow them to sell the gas rather than flare it. Wouldn't that be considered at an effort to market the gas?

Permalink Reply by Two Dogs, Pirate on March 31, 2014 at 12:35

Yep.

Permalink Reply by Aubrey C. Sanders, Jr. on March 31, 2014 at 16:06

Two Dogs, Pirate, I congratulate you patience! Seriously!!

Permalink Reply by G Meaux on March 31, 2014 at 16:27

LOL! Me too!

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