Legal ramifications of lease expiring without extension

I have a five year lease, signed in 2007 with an option to extend for five more years in 2012.  The gas company opted to extend the lease for the additional 5 years, taking it to 2017.  The gas company has, recently constructed a pad with five well heads and have drilled four wells, one of which goes directly under my property.  They have not, however, fracked the wells, and they have not produced marketable quantities of gas from the site, thereby locking me into my lease.  The gas company has recently approached me to extend my lease for an additional year and I am weighing whether or not to do it.  I purchased my property in 2008 and the lease had already been signed by the previous owner at the worst possible terms.  I would like to understand what happens if I let my current lease expire.  What are the options for the gas company if someone in the middle of a pooled group suddenly regains rights to their minerals? Would they have to renegotiate the lease, or could they pump gas out from under me without compensating me? I have not found anyone who can tell me.  Please help.

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Permalink Reply by Bob Shaw on March 14, 2016 at 11:04pm

First of all, I suggest contacting an attorney that works in Oil&Gas. My guess is that you are in a strong position to get more favorable terms, depending upon how many acres you have, and the total size of the Unit. Generally, in Ohio, the Driller must have obtained 90% of the Unit before Mandatory Pooling goes into effect. (there are exceptions to that). 

Mike MurphyPermalink Reply by Mike Murphy on March 15, 2016 at 1:53am

several factors need to be known  how many acres  what was the original royalty and bonus where is the lease located what is the  one year extention lease bonus offered ??sounds e they need you get an ATTORNEY

Permalink Reply by BIG on March 15, 2016 at 3:23am

They O&G company has until 2017 to produce out of the well. They could complete the one well that goes under your land. They do not need to complete all the wells unless there are more leases that will expire in 2017. If so, they will complete all the wells. If you don't sign the extension they will produce the well and you will be subject to the low prices of commodities. You could sign an extension and gets some bonus money upfront and the company can hold off completing the well until prices come up.

Permalink Reply by Tim Anderson on March 16, 2016 at 3:15am

I understand this thinking, and that is what the gas company has suggested they would do, but it seems to me that it would cost them so much more to do it that way then it would cost them to slightly increase my royalty.  The cost to them of producing from this site has to be large, and the lost revenue from doing it with prices so low seems like it would be cutting off its nose to spite its face.  They've also suggested that they would redrill the well and go around my property.  I can't imagine that that would be a better option to them.

Permalink Reply by Barry D on March 15, 2016 at 3:50am

Tim,

I am not sure about several of the issues you have raised. As suggested in another reply, consulting an O&G attorney may be wise.

As for selling the gas (or other produced products) - that would be theft if you were not compensated (my opinion). But again, an attorney could answer this question far better than any of us here is able.

Permalink Reply by Tim Anderson on March 16, 2016 at 3:11am

I agree with your theft point.  Thanks for your reply.

Permalink Reply by Tim Anderson on March 16, 2016 at 3:16am

Thank you all for your feedback.  I will get an attorney.

Permalink Reply by James T Monyak on March 18, 2016 at 6:58am

You are in great position since that can't drill a well under your property. Depending on how much land you own in the drilling company unit, they could force you into the unit under the old terms.  Saying that, nothing gain nothing lost.

Permalink Reply by Marcus Brown on March 18, 2016 at 12:40pm
Offer to sign a new lease for a 3 year term and renegotiate the lease.

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