Shut In Clause

Chesapeake Energy holds the lease to 2100 acres our family owns in Lawrence County, Kentucky. In August 2013 they contracted with a local drilling company to drill a vertical well into the Berea formation in order to hold their lease which was due to expire in November. The company drilled the well which only produced a very few barrels of oil before they shut it in. Several months went by before the local driller came back and drilled a horizontal well. About the same time as that well was being drilled Chesapeake moved in and drilled a 12,000+ foot well on the opposite side of our farm. Chesapeake drilled the well and did a flow back test on the well and shut the deep well in. In the meantime the local driller pumped the second shallow well for a few months and shut it in due to low production on November 14, 2015. It was only making 5-7 barrels of oil a day and about 30 barrels of water.(They plugged the first shallow well before they drilled the horizontal well.) Our lease states a well can be shut in for 6 months and then we are due a shut in payment. The local driller paid us a shut in fee in the late summer of 2014 between the time they shut in their first well and the drilling of their second well. It has now been over 7 months since their second well was shut in. How long can they shut the well in without payment and the lease stay valid? What should our next step be as the landowner? Any information is appreciated!

Also does anyone have any information on Chesapeake's discussions with Core Minerals out of Evansville , Indiana concerning their acquisition of all of Chesapeake's shallow holdings in Kentucky and west Virginia?

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Permalink Reply by IRONFARMER on June 25, 2016 at 3:37am

Is this on the Stephens Lease?

Permalink Reply by Gopreach on June 25, 2016 at 4:00am

Yes it is.

 The company that drilled the shallow well placed an engine back on the pump jack of the shallow well and pumped it for about 6-12 hours over a 2 1/2 day period beginning 5 days before the shut in period ended. It only pumped water but they told us yesterday this satisfied the shut in clause and therefore they do not owe us the shut in fee. I told them I was very disappointed that they would do such a thing and told them that was never the intent of the shut in clause which they certainly know. This is our introduction to the way these companies operate.

Permalink Reply by IRONFARMER on June 26, 2016 at 11:04pm

Is the Berea Well the one just above the road on 3 near Little Cat. If so file an affidavit of non production at the dept of oil & gas to have that eyesore plugged, definitely the cheapest way to get the shut in money, and possibly the land reclaimed as for the lease you can probably forget about breaking it under the chk lease and the fact that they have already spent in the neighborhood of 6-8 million on the well, Like I said the best you will do is shake out the shut in funds. Just a note, most chk leases I have seen have a clause that you are held by production even if a well which is drilled is not capable of producing anything.

Need to add that one to the SLB  Oil  & Gas Definitions "Lease Held by Non Production" 

Permalink Reply by Gopreach on June 27, 2016 at 1:21am

Thank you for your reply. I have learned a lot from this site and others. Unfortunately it is to late. This is an old lease and no one ever dreamed years ago what potential our properties may hold today. I have a good friend from Johnson County whose family has been heavily involved in oil and gas leases for two generations and he told me he too never dreamed where we are today in regards to leases.

Permalink Reply by Gopreach on June 27, 2016 at 3:59pm

Chesapeake did honor the shut in clause today. We sure do feel better about this situation with them doing so. I am not sure why it was over a month overdue but they did honor their lease.

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