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Permalink Reply by Finnbear on March 11, 2012 at 4:02pm

A bit of advice for anyone reading this. Before you sign a lease with anyone, add wording that requires the lessee to file a "release of lease" with the county where the lease is recorded should the lessee ever forfeit/surrender/let expire/cancel the lease for any reason. Also require that they provide you with a copy after it is filed. This will eliminate title defects like Vicki described above in the future. Those old leases hanging out there in the county recorders office must be tracked down to be sure there is no encumbrance on your property before you can lease again and that takes both time and money to do. Require that a lessee who intends to finish the job by giving up a lease to actually "finish the job" by doing the required paperwork.

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Permalink Reply by Jim Shoos on March 12, 2012 at 3:27am

Finnbear... your advice is well intended but simply adding a provision to a lease agreement such as you suggest is meaningless.  If a lessee does have a lease that has expired by its own terms what incentive does he have to comply with any of the written provisions in that lease requiring a release to be filed.  If the lease had indeed expired what is the downside to not complying with a lease provision on a lease that is no longer in force and effect.  This is particularly true when, as in the case that Vicki recited, the lessee filed bankruptcy.  This is not to say that all companies will disregard their contractual obligations in terms of filing a release, I'm just saying that your solution is not the end all/be all solution you suggest.

A lessor can simply file an affidavit of record which states that the lease in question has expired by its own terms and there is no production that exists on the lease, nor is the lease pooled with acreage that is producing and the lessor has not received any royalty payments... thus declaring the existing lease to be of no further force and effect.

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Permalink Reply by Jim Litwinowicz on March 12, 2012 at 2:00pm

I don't believe that Finnbear stated that addendum was the end all be all solution to anything. He merely stated he felt it was important to have that clause added to any lease.  And I agree with him.

There are a lot of companies that don't go bankrupt.  I know people that had to fight some big name/well known companies to get a surrender document so that they lease their rights. These companies like to delay and drag out things.  They are also huge bureaucracies with lots of divisions that often lead to unacceptable delays, even if not intentional. 

Additionally, leases are often re-assigned many times without notification to the landowner.  The landowner often doesn't even know who is holding the lease. This clause will motivate the original company  in assisting the landowner on getting this issue cleared up. Having this clause helps the landowner get it cleared up if necessary...its called breach of contract if they refuse.

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Permalink Reply by Mike C. on March 12, 2012 at 8:10am

They actually have a great rep in OH.  Are you HBP?

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Permalink Reply by Vicki Mellon on March 12, 2012 at 12:02pm

Hi Mike, I would like to know what HBP is? I am new to this and not sure what you mean? Thanks for helping me out? We are going to sign the extension but I still need the info as to whether or not we need an attorney to clear the old gas lease. Thanks everyone there is so much to learn.

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Permalink Reply by Farmhouse on March 12, 2012 at 3:40pm

Vicki,

HPB is Held By Production. Also know as being 'shut-in'. It's when a company holds the lease in a state of non-production or inactivity usually until, for instance, the price of the commodity rises to a level that is more profitable. Sometimes they drill a well and shut it in, sometimes they don't. There will be language in the lease regarding the particular terms.

In PA, I'm pretty sure (not an attorney) that if the terms of the old leases were only for a year and there was never any drilling or anything that the company most likely filed a release with the County. And yes that release would need to be cleared by an atty. Most likely Carrizo's during their internal period of due diligence on your title.

I will attest that Carrizo is a top notch company to deal with. 

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Permalink Reply by Finnbear on March 13, 2012 at 2:39pm

HBP and Shut-In are not one in the same. Shut-In implies a well capable of production but not being produced for whatever reason. Generally, a 'Shut-In" royalty payment (and sometimes an allowable shut-in term) is defined in a lease and the lease can be held by shut-in royalty payments (sometimes for a defined period of time) instead of producing the well and paying production royalties. HBP means "Held By Production" and allows the lease to remain in force past its primary term by any of the methods/actions defined in the lease as "production".

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