northwood/statoil lease

I have friends and family that leased with northwood energy 5 years ago.  their leases are up in april and may 2015.  they have received checks from stat oil to extend their leases for another 5 years.  in their leases there is a clause that if they receive another top leases offer before the end of the term of the contract the first company gets the option to meet the top lease offer.  they have been told from stat oil that their contract that they bought from northwood the term is good for 10 years not 5 years, and the top lease portion of the contract would not go into effect until after 10 years.  my questions are why would stat oil send a check for the next 5 years if it is supposed to be a 10 year contract, and if they are lying to get people to cash the check to extend the lease is there anyone out there willing to top lease these contracts in Monroe county ohio

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Permalink Reply by Dexter Green on March 10, 2015 at 12:53pm

"my questions are why would stat oil send a check for the next 5 years if it is supposed to be a 10 year contract"

It's probably a 5+5 term, which means the second five years are at the discretion of the lease operator but must be paid for.  In other words, a 5+5 is a ten year lease only if it is renewed after the first term (5 yrs) is up.  

Permalink Reply by luke s on March 10, 2015 at 1:28pm

 this is a 5+5 yr contract, my mistake.   would it be legal for someone to get a top lease in the first 5 year term that would force stat oil to match it

Permalink Reply by Dexter Green on March 10, 2015 at 1:52pm

Sure, they (Statoil) just wouldn't have to match it until the end of the second five years, at which point the lease would be expiring anyway.  Unless the contract allows for a third party offer after the first five year term (which I've never seen) then Statoil has the right to renew at the agreed upon price.

Permalink Reply by luke s on March 11, 2015 at 9:06am

THE CONTRACT STATES THE RIGHT TO FIRST REFUSAL:  IF AT ANY TIME PRIOR TO THE EXPIRATION OR TERMINATION OF THIS LEASE, LESSOR RECEIVES ANY BONA FIDE OFFER, ACCEPTABLE TO LESSOR, TO GRANT AN ADDITIONAL LEASE (TOP LEASE) COVERING ALL OR PART OF THE PREMISES, LESSEE SHALL HAVE THE CONTINUING OPTION BY MEETING ANY SUCH OFFER TO ACQUIRE A TOP LEASE ON EQUIVALENT TERMS AND CONDITIONS.  ANY OFFER MUST BE IN WRITING AND MUST SET FORTH THE PROPOSED LESSEE'S NAME, BONUS CONSIDERATION AND ROYALTY CONSIDERATION TO BE PAID FOR SUCH TOP LEASE, AND INCLUDE A COPY OF THE LEASE FORM TO BE UTILIZED REFLECTING ALL PERTINENT AND RELEVANT TERMS AND CONDITIONS OF THE TOP LEASE.  LESSEE SHALL HAVE FIFTEEN (15) DAYS AFTER RECEIPT FROM LESSOR OF A COMPLETE COPY OF ANY SUCH OFFER TO ADVISE LESSOR IN WRITING OF ITS ELECTION TO ENTER INTO LEASE WITH LESSOR ON EQUIVALENT TERMS AND CONDITIONS.  IF LESSEE FAILS TO NOTIFY LESSOR WITHIN THE A FORESAID FIFTEEN(15) DAY PERIOD OF ITS ELECTION TO MEET ANY SUCH BONA FIDE OFER, LESSOR SHALL HAVE THE RIGHT TO ACCEPT SAID OFFER.  ANY TOP LEASE GRANTED BY LESSOR IN VIOLATION OF THIS PROVISION SHALL BE NULL AND VOID.  THE MEMORANDUM STATES THE FOLOWING:  LEASE TERM, COMMENCEMENT, TERMINATION, EXTENSION, AND RENEWAL.  THE INITIAL TERM OF THE LEASE SHALL BEGIN AS OF THE EFFECTIVE DATE OF THE LEASE AND CONTINUE IN FULL FORCE AND EFFECT FOR A PRIMARY TERM OF FIVE (5) YEARS AND AS LONG THEREAFTER AS ANY LEASED MINERALS ARE PRODUCED FROM THE PREMISES OR LAND(S) UNITIZED THEREWITHIN OR FOR AS LONG THEREAFTER AS THE PREMISES IS USED FOR STORAGE OF ANY LEASED MINERALS, OR THE LEASE IS MAINTAINED UNDER ANY OTHER PROVISION THEREOF.  LESSEE AT ITS SOLE OPTION MAY EXTEND THE PRIMARY TERM FOR AN ADDITIONAL FIVE(5) YEARS.

Permalink Reply by Dexter Green on March 11, 2015 at 10:05am

That last line gives you part of the answer.  Statoil has the option to extend the lease for an additional five years.  Now, if you can post the language of the extension clause that'll give us the whole answer.  

Permalink Reply by luke s on March 11, 2015 at 11:24am

I AM NOT QUITE SURE WHAT YOU MEAN BY THE EXTENSION CLAUSE.  THE ONLY THING I SEE IS THAT IN THE EVENT THE PRIMARY TERM WILL EXPIRE AND LEASED MINERALS ARE NOT BEING PRODUCED FROM THE PREMISES, OR LANDS UNITIZED THEREWITH, AND THE PREMISES IS NOT BEING USED FOR STORAGE, LESSEE AT ITS SOLE OPTION, MAY EXTEND THE PRIMARY TERM FOR AN ADDITIONAL FIVE (5) YEARS (CALLED THE EXTENDED PRIMARY TERM) BY DELIVERING NOTICE TO THE LESSOR BEFORE THE EXPIRATION OF THE PRIMARY TERM AND TENDERING PAYMENT OF THE SAME CONSIDERATION MADE UPON EXECUTION OF THE LEASE.  ANY REFERENCE IN ANY OTHER PARAGRAPH OF THIS LEASE TO THE PRIMARY TERM SHALL INCLUDE BOTH THE PRIMARY TERM AND THE EXTENDED PRIMARY TERM IF LESSEE HAS EXERCISED ITS OPTION HEREUNDER.  MY NEXT QUESTION IS ""SOLE OPTION".  I UNDERSTAND THAT THIS MEANS  THAT THE LESSEE IS THE ONLY PARTY THAT CAN ASK FOR THE NEXT 5 YEARS, AND THE LESSOR CANNOT DEMAND IT, BUT DOES THIS STOP THE LESSOR FROM SEEKING A TOP LEASE THAT THE LESSEE WOULD HAVE TO MATCH? 

Permalink Reply by Dexter Green on March 11, 2015 at 3:40pm

MAY EXTEND THE PRIMARY TERM FOR AN ADDITIONAL FIVE (5) YEARS (CALLED THE EXTENDED PRIMARY TERM) BY DELIVERING NOTICE TO THE LESSOR BEFORE THE EXPIRATION OF THE PRIMARY TERM AND TENDERING PAYMENT OF THE SAME CONSIDERATION MADE UPON EXECUTION OF THE LEASE. 

That's what I was looking for.  

" DOES THIS STOP THE LESSOR FROM SEEKING A TOP LEASE THAT THE LESSEE WOULD HAVE TO MATCH? "

Yes, because the extension is merely that, an extension of the primary lease.  If you have a top lease offer then take your original lease to a lawyer--one who does oil and gas (for real and not just in the last two years)--and see what he/she says.  Sounds like a top lease is out of the question until the term expires, which is five years from the extension.

Permalink Reply by luke s on March 12, 2015 at 8:26am

THANKS FOR TAKING YOUR TIME TO ANSWER MY QUESTIONS

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