What happens if your lease has expired but you are then included in a production unit?

Our lease has expired and no one seems interested in re signing us.  We see that some of our land is included in a proposed well unit.  They have not started drillling this well so my question is will the gas company that is drilling the well want to sign us to a new lease?  Can we be in a unit and not have a lease?  If yes, how do they determine the royalty percentage.  There are several other land owners named in this unit who do not have current leases.  Thank you in advance for any feedback!

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0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on July 3, 2012 at 9:01am

It's unusual t be in a unit and not be under lease.  More information is needed.  What State, County, Township, Well name, etc?

Permalink Reply by Frank Walker on July 3, 2012 at 9:45am

Be quite thoughtful and careful.  There appears, implicitly, to be a disagreement between yourself and the gas company.  They would not unitize unleased land.  However, if the unit is merely proposed, and not formalized, that could be an explanation.  "Formalized" in this instance means they have filed at the courthouse claiming your land is inside their unit.

Like I said, be really careful.  You might need the services of a good O&G lawyer to clear this up for you, and also possibly to help you obtain a good new lease.

There is one other possibility I hesitate to bring up:

If you have only a very small amount of land, the gasco might have decided simply to go around you.  In the past this did not happen;  they tried to lease all parcels regardless of size.  The price of natural gas is so low now, though, that there could be some shenanigans going on.  I doubt it.  But you never know.

Permalink Reply by Kathleen on July 3, 2012 at 11:42am
In Ohio I know of someone who is in a permitted unit who is unleased. No unit drawing has been submitted yet. I called the oil co. myself about my neighbors parcels to check into this for him so this is not second hand info. He is at the end of the unit so if they don't sign him I guess they will just shorten it :0( which is a bummer for me since I know this will pull some of my land out.
Permalink Reply by Barbara on July 4, 2012 at 1:40am

Thank you for your reply.  The gas company (Talisman) filed the paperwork with the court house which listed what land owners are in the unit but did not include what they referred to as Exhibit B which I am assuming would have been the drawing or at least a list of how many acres per landowner would be included in the unit.  We are not the only ones in this situation I think there are four other owners with leases that have  or will expire very soon that are listed in the unit.  We only know this because we recently made some changes to our deed and checked on Landex to see if the deed was recorded.  Talisman had filed the unit documents without a map or layout.  I could see if we were the only land owners listed this way but we are not.  Who knows, I guess we will just have to wait and see.

Permalink Reply by Frank Walker on July 4, 2012 at 1:56am

FWIW, be aware Talisman at this time is in the throes of massive back office confusion and backlog.  They are far, far behind with their "paperwork", possibly in some instances as much as seven or eight months behind.

So if your lease expired only recently it's entirely possible their system still has not accommodated to that reality.  I'll adhere to my earlier advise about seeking counsel.  However, if you are satisfied with your lease, or former lease, you might want to go with it and allow yourself to be brought into the fold.  Raising objection now could cause you to be cast out of a good situation.

Everything depends on the many specifics of your circumstances, of which you have revealed scant few.  We don't even know what state you are in.  You really need guidance from a knowledgeable individual to whom you would be comfortable revealing all the critical parameters and details upon which any wise decision will hinge.  

Permalink Reply by Barbara on July 4, 2012 at 6:29am

Thank you for taking the time to give me such good advice.  I have only just joined this site and this is my first post.  We live in Bradford County PA and I thought when I posted this question it was being addressed to the Bradford County Group and that my user information would show that to everyone once I posted a question, sorry I will try to learn how to navigate this site better.  Your reply makes the most sense since it has been only a few months and yes we are happy with our lease which was with Talisman so if they just want to renew it at some point we will just wait for that to happen.  Thank you again!

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on July 4, 2012 at 10:33am

Perhaps I just missed seeing it, but I don't see where you actually stated that Talisman is the company that you are leased to.  You said Talisman is the company that has filed a Unit Declaration, but that doesn't mean you are leased with them.  If you are leased to another company it is possible that your lessee is a partner in the drilling of the proposed well and will contribute the lease to the venture.  You undoubtedly have a pooling clause and your lease undoubtedly defines what constitutes "operations"... if your lease is beyond its primary term as you stated, then whether or not your lessee or Talisman can claim to have perpetuated your lease beyond its primary term will depend on whether or not they have met the definition of "commencing operations" which would serve to extend your lease.  Its somewhat of a dicey proposition in terms of whether or not the filing of a Unit Declaration would serve to perpetuate your lease (assuming operations were commenced timely).  Do you happen to know if the Unit Declaration was filed prior to your primary term expiration date?

Permalink Reply by Barbara on July 4, 2012 at 1:02pm

Our lease is/was with Talisman, I forgot to state that in my original message.  Thank you for your reply, you have helped us solve this.  I was able to download the Unit Declaration and see it is dated November 2011!  This date is prior to our lease expiration which was in March 2012.  Talisman filed this document with the court house on June 26, 2012.  I guess that means our lease is still considered active and we will just have to wait to see if they actually drill this well.  Thank you again.

 

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on July 5, 2012 at 4:11am

For Talisman's sake they sure better have done something that constitutes "commencement of operations" as your lease requires... otherwise the Unit Declaration (pardon my french)... doesn't mean squat.  A unit declaration filing, in and of itself will not serve to perpetuate your existing lease.  As somebody on this site mentioned, and they seemed to have some degree of personal knowledge, Talisman is short handed and may not even be aware of the potential lease expiration issue.  I wouldn't necessarily take it at face value that Talisman has in fact begun operations on the well that would serve to perpetuate your lease.  The best way to find out might be to contact Talisman and simply assert that your lease has expired... if Talisman has facts that would controvert your assertion they will certainly let you know.

Permalink Reply by Frank Walker on July 5, 2012 at 7:22am

Commencement of operations can be a very low hurdle depending on the specifics of one's lease.  Talisman has a history of early unit declarations.  Sorry, but I don't know the specifics of how they defend this practice.

Barbara seems satisfied with her situation.  It's impossible for us, with the paucity of information available, to know whether or not she is justified to be feeling OK about this.  There are so many variables.  There's just no way to know.

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on July 5, 2012 at 7:38am

Agreed... I have actually reviewed an older vintage CHK lease that more or less said that commencement of operations, and I quote directly from their lease:

Lessee shall be deemed to be conducting operations if the Lessee in engaged in geophysical and other exploratory work including, but not limited to activities to drill an initial well...such activities shall include, but not be limited to, performing any preliminary or preparatory work necessary for drilling, conducting internal technical analysis to initiate and/or further develop a well, obtaining permits and approvals associated therewith..."

So, conceptually, if a geologist on staff had even drawn up a map they could claim they were  conducting internal technical analysis and hold the lease.  How about that crap!  I really feel sorry for the poor lessor on that lease.

3uq96odaochmjPermalink Reply by 3uq96odaochmj on July 6, 2012 at 10:43am

Sounds like your property was only being utilized to obtain the required spacing for the permitting process.  DEP doesn't check, nor care, what tract(s) have active leases or not.  Happened to a friend in Greene Co. by Chesapeake.

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