Can HBP be retroactive?

Suppose there is a property with an old lease and an old producing well, so the property is HBP.

And suppose that around this property there are other tracts that have been recently leased by the same driller as the HBP tract.

Can the driller declare a unit including all of these, and say that the new leases are now HBP, based on the old well that was in production before the new leases were signed?

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Permalink Reply by Robin Hood on December 13, 2012 at 10:30am

"If the Landowners allow it." That's the crux of the problem, the oil companies try everything to avoid paying more and call it "just doing business."

This leaves the landowners feeling used and cheated, with the only recourse to "take it to court" which very few owners have the financial means  or fortitude to endure. It's like taking your baby from the lions and giving him to the sharks. Vetting lawyers is no picnic. We have been wringing our hands for over a year and figure it will probably be 6 more months at least. But we refuse to let the oil company tell us that they don't have to follow the terms of the lease, it is our property after all.

Good luck. Don't give up.  

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on December 13, 2012 at 2:19pm

I don't think you can retroactively HBP land, especially under the circumstances that you cite.  ODNR lets you redraw a unit map under special circumstances, but this doesn't sound like it qualifies.

Permalink Reply by Jim Litwinowicz on December 13, 2012 at 4:49pm

See what the unitization clause on existing lease is. Say it is 120 acres if an old lease. That would limit what they could do.  And if you have an old lease and they ask to amend the unitization to allow for 640 or 1280, make sure that any vertical well is still limited to 80 acres or so. That limits what they could expand a unit to with just a vertical well.  And make sure there is a good Pugh clause with it.

Permalink Reply by Mike on December 14, 2012 at 1:38pm
I don't see how new leased acres could be held by production of an old well if there were no payments for production. Wouldn't HBP mean roalities would have to be paid from a well previously only paying one lease now pays other land owners?
Permalink Reply by Willi West on December 14, 2012 at 1:45pm

Thinking over my question, I guess we could break it into two.  First would be, could the driller form a unit?  Seems like the answer has to be yes--he holds the leases and, like all leases, they allow formation of a unit.  Assume no complication from limits on unit size.

Anybody see why he could not form a unit?

Permalink Reply by Jim Litwinowicz on December 14, 2012 at 1:52pm

ASAIK, they certainly could. In fact that appears to be their strategy. The Buell well unit is only 177 acres.  Its an old lease so they only  have to pay 12.5% royalties on all that oil. Once that lateral is all deleted they will have to expand the unit to drill in other directions.

Once they expand the unit, royalties will be shared with all other owners. A totally unfair system but legal, I believe.

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