Is my old HBP lease invalid?

I have an old HBP oil lease, well was drilled back in 1985.  The royaly checks came for several years, then in the early 90's the checks stopped for about 2 1/2 years as the well was shut in.  No rental payments were made.  Then the checks started coming again for several years, then stopped for 1 year, then started again up thru the present time.  All checks were cashed.

I am wondering if the the fact that no payments were made for the 2 1/2 years if that invalidated the lease?

 

Any input up front before I talk  to some attorney would be much appreciated. Thanks

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Permalink Reply by John Goold on April 4, 2013 at 1:21pm

What have your royalty checks been?  Secondly, what does the shut in clause say on your lease, there is usually some royalty required for a shut in period.  While I don't think it is advisable to cash checks while a lease is being challenged that alone generally doesn't work because an oil company can always cure that by reissuing the checks if a lease is being challenged.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 4, 2013 at 2:26pm

It's hard to get a judge to side with you when there is a producing well.  2 1/2 yrs. of non-production isn't usually enough to get the thing released, especially if it's still producing today.  Call a lawyer and see what your options are.

Permalink Reply by John Goold on April 4, 2013 at 3:00pm

It gets back to payable production as well.  Has the well been producing enough to make a profit for the company or not?  Would it be prudent from a business sense to keep your well going or is it only being kept going to hold the lease for speculative purposes?  Is the production being falsified?  I would suggest a lawyer and an investigation of these issues.

Permalink Reply by John Goold on April 4, 2013 at 5:59pm

I would like some more information too but definitely should be reviewed by an attorney which will be relatively expensive as a lot of attorneys don't give much of a consultation on these.

Permalink Reply by Markus on April 4, 2013 at 7:46pm

I agree with all of those above.  Each case will be different based on the wording in the lease. Given that your lease is over 25 years old, it probably is written in a pretty simple manner.  I have seen some leases that say the lease is valid "as long as oil and/or gas is produced" and I have even seen some leases (my neighbors) which state the lease remains valid "as long as oil and/or gas is found" which can be interpreted many different ways.

One issue that I do struggle with relates to this issue of payable production.  Again, commodity prices fluctuate over time.  Traditionally royalties have been calculated on gross revenues so costs to operate the well were never a consideration (at least until all these newfangled leases started being presented to landowners with cost deductions etc.)

The same wells that are so called profitable today at $90 per barrel may not have been considered profitable in 1999/ 2000 when prices were as low as $9 per barrel.  Just because prices were low at that time, does that mean that the producer should have been forced to plug a well?  Of course not.  If that was the case, more than a 1/3 of Ohio's shallow wells would have been plugged years ago.  That wouldn't have been good for anyone in Ohio or in the US.

I think it is best to attempt to engage with the current producer.  If they will not enter into a reasonable discussion, then engaging a lawyer might be your only option.  I know that many smaller producers send royalty checks out just once per year because the amount (particularly for older gas wells) are not that much.  But, that in itself doesn't mean the well isn't producing.

Best of luck to you as you move forward.

Permalink Reply by John Goold on April 5, 2013 at 5:47am

I think a lot of the payable production issues have to do with speculation.  If it can be shown a well with minimal production is being maintained to access the shale then that is has been frowned on by the courts from what I have read.  If it has been producing and paying everybody a fair amount of money and royalties through the years then you may not win the case.  We get $150/year from two wells in royalties I don't think that is payable.  I talked to a man that gets $3000/year in royalties from his well, I think he would have a hard time winning his case.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 5, 2013 at 6:33am

"We get $150/year from two wells in royalties I don't think that is payable."

It is.  That's the contract that exists and the company gets to decide what is appropriate.

Permalink Reply by John Goold on April 5, 2013 at 8:15am

Or the courts can declare that isn't production and void the lease.  It all depends on the language in the lease and contract.

Permalink Reply by John Goold on April 5, 2013 at 5:26pm

I would definitely talk to an attorney and if you don't like what one has to say lets try another.

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