Assuming an old lease!

Please bear with me, this is a long story...

My property was originally part of a larger 140+ acre tract on Ohio.  Way back in the 30's a Brea shale well was drilled on the larger farm, and then in the mid 40's another well was drilled on the same 140+ acres.  Flash forward to today, the farm has been split up among 8 different landowners and currently neither of the wells is producing.

I have done research on both of the wells and have found that oldest well has had the paperwork filed with the state and has changed owners and the other well (mid 40's) is currently in what the state of Ohio calls "Historic Ownership", which for all intents and purposes means that they don't have a clue who actually owns it.

Now to the meat of my dilemma.  The original lease on the property signed back in the 30's has actually changed hands several times in the past 80 years, but the current owner of the one well on the property did NOT file the necessary paperwork at the courthouse when he took over the well.  The last recorded holder of the lease is now deceased.  This research was done by my lawyer along with a mineral rights search on my property.  The way it was explained to me by my attorney was that I could file a "Notice of Forfeiture" and have the lease declared null and void and free up my property and accordingly all of the properties on the original 140 acres.  Before I do that though, I happen to have a friend with the state who explained to me that even though the 2nd well on the original farm is not on my property, if it's ownership truly is in limbo (as will be determined by the state through research at the courthouse) that I then have 2 options with that well....It can go into the state program to have it plugged, or I could file the paperwork and assume ownership of that well.

The only reason I am considering doing this is that these old Brea wells actually produce dry gas for a long long time, and for a relatively small amount of money I could get the well swabbed out and have it potentially start to produce gas again.  My intention is not to produce and sell the gas, but to pipe it to my home/shop and get free gas from it.  What I would like to do if possible is to assume ownership of that well, and file the proper paperwork to take over the old lease as well.  If that can be done, I would release all of my neighbors from the lease with the provision that I maintain a right of way to get to the well and a pipeline from it to my home.  As well as the rights to the gas that the well produces when the neighbors sign with another company.  

Of course I would need to talk to my lawyer about the legalities of this and if it can be done.  I am trying to research it as much as possible on my own since he is out of town until later in the week and I can't talk to him yet.  Has anybody out there heard of or run into any similar situation before.

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Permalink Reply by Jack Straw on March 18, 2013 at 9:25am

RE: "for a relatively small amount of money I could get the well swabbed out and have it potentially start to produce gas again"

 

There is one aspect that might pose troubling ... and that is taking ownership of the 70 year old well.

By taking over ownership, you would likewise take responsibility for this well ... and in taking responsibility for this well, you are making yourself liable for anything that could or would happen.

And, you will be responsible for the ultimate costs of P&A of the well. 

 

This is an old well; questions that I would ask myself:

What is the condition of the casing?

What is the condition of the cement bond?

What is the potential of deteriorated casing and/or poor cement bond allowing gas to migrate to the surface?

What is the potential of deteriorated casing and/or poor cement bond allowing gas or saline (polluted) formation water to contaminate a shallow aquifer?

 

If you were to decide to proceed, you might wish to set aside abandonment costs in an interest bearing escrow account.

If you were to decide to proceed, you might be advised to carry a large blanket liability insurance policy (with that policy expressly referring to the well). This policy should be maintained at a multiple of your net worth.

 

All IMHO,

                 JS

 

 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 18, 2013 at 9:25am

"The only reason I am considering doing this is that these old Brea wells actually produce dry gas for a long long time, and for a relatively small amount of money I could get the well swabbed out and have it potentially start to produce gas again."

This is...not true.  Swabbing the well isn't exactly cheap, but that's not the real expense.  The real expense is when it finally peters out and you have to foot the $10,000-12,000 bill to plug it.  Is the "free" gas you'll be getting going to save you that much over the next X amount of years or is it better to just file your affidavits and dump the old lease?  Where's the land located?  What are lease prices?  Do you want to be responsible for the well if something goes wrong?  There's a lot to think about before you jump in and own a depreciating asset that has a fixed cost at the end of its life.

Permalink Reply by Paul Martinelli on March 18, 2013 at 9:41am

I would have the entire lease declared null and void......let the State plug the old wells as abandoned.

 

Sign a new lease  and enjoy life!

Permalink Reply by Tom on March 18, 2013 at 12:21pm

You guys are right, there is a lot to look into before such an undertaking.

One of the things my friend told me, which I need to verify is that you are not bound by the same regulations as producers if you only own one shallow well for domestic use.  I'm sure you are still responsible for certain things, but since you are not classified as a "producer" by the state of Ohio, some things are different.

Also, a bond to cover the cost of plugging a well is one of the things I will look at as well.  I'm sure they can't be too terribly expensive though.

As far as the casing and condition of the well are concerned, that would need checked out to see if it is even worth doing anything with.

For,  is it worth the trouble to do such a thing...I think it might be.  Right now NG is pretty reasonable from the retail market, but it's not available in my area and it won't stay this cheap forever.  We live so far out in the middle of no where that there is nothing running close by for miles.  The only producing dry gas wells are a goodly bit from me and not able to tap into.  There is no pipelines around to get a farm tap from, and with the new horizontal wells going in, they are all wet gas and they won't allow you to tap off of them from what I've heard.  So, comparing the cost of propane and/or fuel oil to the hassle of taking possession of a small well, it may be worth it to me.

Also, the cost of filing the affidavits to have the lease voided might be considerably more money than just reassigning the original lease.  All things to consider and look into before I proceed. 

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on March 18, 2013 at 1:35pm

Filing the affidavits should cost you a few hundreds of dollars.

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