Need help understanding next process.

My in-laws have an original land lease contract which expires in August. They are in their mid 80's and connot process all the necessary paperwork and deadlines themselves. I live 3 1/2 hours away and cannot simply stop over to check on things. What happens now that a pad has been placed on their property and one of 6 wells has been drilled and fracked? Does the original land lease cease, or does a new land lease get negotiated? Please help me understand the process before I have to invest a large sum of $ on legal fees!

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Permalink Reply by Tom R on February 19, 2013 at 2:49pm

      I'm no expert, but if a well has been drilled and fracked I would assume their existing lease will stay in force. Leases that I've seen specify that if a well is drilled on the leased land or land with which it is unitized or pooled, that locks in the existing terms. Next step is for a unit to be declared, in my case that was done four months after the well was completed but have heard from some that it took six months for the papers to be filed. Actually getting production may take a while, I've been waiting two years for a gathering line to get put in.

Permalink Reply by Mark McGrail on February 19, 2013 at 4:21pm

GM612,

The lease remains in force, no need to spend money on legal advice.

Permalink Reply by GM612 on February 21, 2013 at 3:39am
So even though the lease is set to expire in August, they cannot renegotiate a new lease?
Permalink Reply by Tom R on February 21, 2013 at 4:06am

To quote from the standard language on most leases, "Lease Term: This Lease shall remain in force for a primary term of (x) years from (date) to (date) and shall continue beyond the primary term as to the entirety of the Leasehold if any of the following is satisfied:" Goes on to list things like start of operation, unitization, etc. So from what you have said, the conditions have been satisfied and even though the end date for the "primary term" of the lease may arrive the current lease will not expire and they will not be able to renegotiate.

Permalink Reply by Farmhouse on February 19, 2013 at 10:02pm

If the pad and first well were completed within the term of the original lease than the lease will now stay in effect as long there are operations going on, gas is being produced or the well is 'shut-in". If the well is shut in, that means the company plans to develop the property at a later date but has essentially done enough production by building a pad and drilling a well to hold the lease in force. This is known as Held by production. (However if the company fracked the well, then I would guess they will start selling gas from at least that well- then your in-laws would begin receiving royalty payments.)

Short answer: The lease stays in force basically from here on.

If held by production most leases call for a small token payment, a few bucks per acre after there has been no activity for a certain amount of time (6mos, or a year).

You may want to have an atty review the lease any way to ensure your elderly in-laws are getting what their lease calls for, i.e. potential payment to have the actual pad on their property, gathering lines, pipelines etc. what about a water impound? Did they get that and did they get paid for damages? May or may not favor them but all of this stuff is likely spelled out in the lease. Hope this helps. Good luck.

Permalink Reply by GM612 on February 21, 2013 at 3:34am
Thank you everyone for your time and info! This is a great forum for those of us out of the loop far away from the "action"!!!

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