One of my farms was pooled with a well that was completed in June 2012. I received the notice of pooling in a letter dated April 2013. The well began production September 2013. I think that I am entitled to a shut-in royalty based on paragraph 15 of my lease:
15. SHUT-IN PAYMENT. In the event all wells drilled on the leased
premises or on land pooled or unitized hereunder are shut-in because Lessee is unable to
market the production therefrom, or should production in paying quantities cease from all
such wells, or should the Lessee desire to shut-in all such producing wells, the Lessee agrees
to pay the Lessor, commencing on the date six (6) months from the beginning of the period
with no production being sold, or the cessation of production, or the shutting-in of each
producing well, a shut-in payment in the amount of Fifty Dollars ($50.00) per acre every six
(6) months until the earlier of: production is marketed and sold off the leased premises, or
such wells are plugged and abandoned according to law, or six (6) months after making the
fourth (4th) shut-in payment. Notwithstanding the making of such shut-in payments, Lessee
shall be and remain under the continuing obligation to (a) use all reasonable efforts to find a
market for said gas and/or oil and to commence or resume marketing same when a market is
available, (b) reasonably develop the leased premises as provided in this Lease. Upon
delivery of the shut-in payment as provided herein, the Lease will continue in force and
effect while production is shut-in. It is understood and agreed that, in the sole discretion of
the Lessor, this Lease may not be maintained in force for any continuous period of time
longer than thirty (30) months, or a cumulative period of sixty (60) months after the
expiration of the Primary Term hereof solely by the provision of this shut-in clause.
In January 2014 I sent a certified letter to CHK and gave them 30 days to respond. The certified return states that they received the letter. I have not received a response yet (today is 3-7-14).
My question: Do I have a good legal position to enforce this paragraph? If I do, then when does the shut-in period start for this well: at completion or at notice of pooling? The paragraph limits the total shut-in time to a total of 60 months, so I need to keep track of ALL months that it was not in production.
One other question: this well only pooled 10 acres of the 80 acres that I have leased. Is the shut-in calculated on the 10 acres or 80 acres?
If the general consensus of this group is that I am in the right, I will take it to my lawyer ($225 per hour eats up a lot of the potential gains if I pursue this). If I am wrong, then I'll drop it and won't be out any money/time. Thanks in advance for any insight!
Tags:
Yes, my lease has a Pugh clause.
I disagree on your definition of shut-in. What would prevent the driller from drilling a well, never producing it, and thereby holding leased acreage? If they want to hold acreage, they need to produce it OR pay a shut-in royalty. Yes they are now producing this well, but shutting it in for over 15 months after completion is excessive. That is why the shut-in royalty clause is included in the lease.
I did finally receive a royalty check. The lease stated that they had 120 days to pay from the end of the first month of production. The check was dated 125 days (5 days late) and I received it 128 days after the end of the first month.
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