Replies to This Discussion

Permalink Reply by jason on September 12, 2009 at 3:07

We own property in section 26 Bienville parish and leased with Empressa before the Shale word got out. We leased in 2006 for $250 an acre and 20% and during the three years Empressa drilled five wells, all Cotton Valley and Hosston depths, no Haynesville wells. The royalty checks were always on time so we have no complaints with Empressa. Our three year lease ran out 06-2009 and we had a vertical pugh clause in our original lease so our deep rights came back to us. They tried to renegotiate the deep rights before our contract expired but we did not sell.A couple of weeks before our lease expired they sold everything to Chesapeake. We now own our deep rights and are hoping that cpk will come in and drill some haynesville wells when gas prices spike up. The final offer that we got from them was 5,000 acre with 25%. Watch out for the land guy at JPD that does the leasing for them. He tried some serious scare tactics and lies to try to get us to sign over our deep rights but we did not give in. He basically told us that if we do not sign over our deep rights then they were going to fast forward the drilling of a haynesville well and lock us in and we would get nothing. That was a lie and really aggrevated our family to know that that kind of stuff actually goes on. My guess is that they are in the business of drilling shallow wells and then selling the deep rights over to a larger explorer. Good luck and hope this info helps.

Permalink Reply by Landowner on September 12, 2009 at 9:03

Jason, Thanks for the information. One thing I did not understand. You said you had a pugh clause that caused your deep rights to come back to you at the end of your 3 year lease. If they had drilled a haynesville wouldn't they have had to release or you would have gotten 100% of the royalities? My question is when you have a pugh clause, then Empressa would have never owned your deep right, am I right? Also, who is JPD?

Permalink Reply by Skip Peel - Mineral Consultant on September 12, 2009 at 9:20

The standard vertical Pugh clause releases depths deeper than 100' below the depth produced after the primary term of the lease expires. During the primary term, Empresa could drill as deep as they wished and if they had drilled a Haynesville depth well, they would hold the lease rights to 100' below that production depth. Empresa in fact drilled Hosston and Cotton Valley wells and therefore does not hold Haynesville rights since the initial lease term has expired. JPD is a third party leasing (land) company.

Permalink Reply by Landowner on September 12, 2009 at 10:21

That is very interesting Skip. I was under the understanding that the Pugh clause only allowed the company to drill the Hosston and Cotton Valley (if stated). Can you state a certain depth in your lease or is it open to the 100' below of produced?

Permalink Reply by Skip Peel - Mineral Consultant on September 12, 2009 at 10:34

You can place specific depth criteria in a lease whether that includes known formations (Hosston/Cotton Valley) or not but that is rarely done. And something that few lessors have the clout to accomplish. The "standard" vertical Pugh clause includes the 100' below produced depth limitation no matter what that depth or formation. The vertical Pugh clause has been around since the early 1970's and has become a widely accepted lease clause. It, and the horizontal version, have been responsible for maximizing the income from mineral development for many savvy land/mineral owners.