More than one HBP player?

I have found an unusual situation on a farm in my area and would love some input.

There are 7 wells on 55 acres.  Five wells owned by the landowner, and two wells by a producer.  The lease with the producer says nothing about depth.  It is a very short and maybe not so sweet two page lease.  The producer has asked the landowner to sign an addendum allowing for the production of the Marcellus and Utica shale.  He says the landowner has no choice since the producer holds the rights by HBP rules.  However, the five wells owned outright by the landowner have made more money, had more oil production than the two wells run by the producer.  So, who really holds the HBP rights?  Any ideas?

The five wells run by the landowner are the super shallow (800' variety) and the two run by the producer are deeper (about 2600').  Nonetheless production is higher on the five shallow wells.  This is about all I have on the subject and would like to know if anyone knows of similar situations, and what the outcome was in those cases. 

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Permalink Reply by Paul Martinelli on May 15, 2013 at 1:37am

it comes down to who owns the lease....the 5 shallow wells may have been part of a "sub lease". So one would have to read the lease to see who owns the deep rights. In any case....the landowner  should not sign any addendum for free.

Permalink Reply by John OBrien, landowner advocate on May 15, 2013 at 1:44am

The landowner gets 12.5% from the producer on the 2 deeper wells.  The landowner gets all of the production from his own wells.  The lease does not call out anywhere a depth or certain "sands, shales" or any other limitations.  Nor does it say anything about the five shallow wells, but like I said, they are recorded at the courthouse just like the 2 producers wells.  

The way I see it the landowner has just as much right to say that he is holding his own deep rights by production as the producer does to try and say the same.  Maybe more, since the landowners production is of greater monetary value. 

Permalink Reply by Edward Sekerak on May 15, 2013 at 5:23am

Common in Warren Co. Pa. You need to read the lease to determine what rights are held by production.

Permalink Reply by Jim Litwinowicz on May 15, 2013 at 5:39am

How did the landowner come to own the 5 wells?  Were they drilled by the landowner or were they assigned to them after several years o production? If they were assigned, what does that agreement state? Were they all owned by the same operator at some point? Or were they drilled by separate operators? If they were different operators, which was first and was one subcontracted or assigned by the other? Were they drilled under separate leases to begin with?

My guess is that the five shallow wells were assigned to the landowner at some point as production fell off. But since two wells are still in production and the landowner is getting royalties from them then the land is still HBPd.

Permalink Reply by John OBrien, landowner advocate on May 15, 2013 at 11:50pm

The five shallow wells were abandoned  (orphan wells and not plugged as they are supposed to be) when the landowner decided to purchase them.  He has been running the wells for about ten to twelve years at a profit and for "free" gas to his home.  The producer, (lessee) came into the picture about eight years ago, but like I said, no special wording in the lease.  To me, the producer obviously did not lease all rights, or he would have taken over the shallow wells.  This leaves the assumption that he leased only part of the "scope of the depth of production".  The question becomes how much of the depth is he entitled to since he never had the capacity to drill any deeper than the 2600' range and did not put any wording in the lease as to what he leased.   In other words, both were producing the property at the same time without knowing anything about the Marcellus or Utica plays.  

Permalink Reply by Jim Litwinowicz on May 16, 2013 at 2:10am

You say the lessee "came into the picture" eight years ago.  Does that mean the landowner signed a new lease with the lessee eight years ago? The land was free and clear and a new lease was signed?

If that is the case and the lease is a standard two pager with out any definition or limitation of depths or strata then I would assume the lessee has rights to all strata.  This means even where five old wells are....they can drill to that depth if they feel it is economical. They could even drill off set wells if so desired.

I am not a lawyer.  You need to get a good lawyer to handle this.

Permalink Reply by Mike Sero on May 15, 2013 at 5:49am

Sounds to me as if the Producer wants to sell the rights

If I am the landowner than this is what I'd ask for.

Royalty to 18% sign the addendum, ask a small bonus. Which probably won't get.

But sounds like since the lease is so ifffffy, that the producer needs to expand and make it appealing to the buyer so the deeper rights can be drilled and unitized.

Permalink Reply by Tim Tarr on May 16, 2013 at 7:08am

I would be very careful on this.


Seems that if lease was signed with no depth severance or something listing those wells lessor has been stealing lessees' oil.

I would like to talk to that landowner. I have wells on property that I'd like to do same thing with. I have a very good depth severance clause. Might even want to drill more "shallow" wells. Maybe I can even get on the Backyard Oil show.

Permalink Reply by John OBrien, landowner advocate on May 17, 2013 at 4:44pm

The producer is well aware (npi) of the five existing wells and is apparently OK with it, but I doubt that he knows he is being out produced, lol.   So once again, since the producer is allowing the landowner to produce his wells, he must be acknowledging that he doesn't have all strata rights.  This may open the door to who is holding what by HBP.  If I were the landowner I would sue the guts out of the producer for equal rights to the Marcellus and Utica.

2z248p19vqnh9Permalink Reply by 2z248p19vqnh9 on May 18, 2013 at 10:23pm

No WAY, hose'. Personally, as far as I'm concerned, tell 'em to 'shove off'....

OK, question - were these x7 shallow wells *ALREADY IN PRODUCTION* previous to any signing of whatever 'lease' . Rush: R30 Overture (R30) - YouTube *BOTTOM line - it's HIS land. THEY're trying to con/MUSCLE him. Bad play.

All is fair in love & war....last I knew. (...'fair', NOT fiat currency!)

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OK, the VERY THING that tells me HE (landowner) is 'free & clear' (on HIS OWN LAND no less...!) is THIS:

The very FACT that they are TRYING to have HIM 'SIGN AN ADDENDUM' (*after the fact*) tells me that THEY (*G/O Co.) - ***DON'T 'have a leg to stand on'!!!

*THREE CHEERS for the LANDOWNER!!!! *Sounds like HE's got 'them' right where HE wants them...and THEY'RE SQUIRMIING!!!

---------------- ***I personally would NOT sign it. Think about it - WHY are they *NOW 'trying to get the HORSE 'back in the barn' after he's already OUT? (not restricted by their 'lease agreement' ). Don't do it, Don't do it *DON'T DO IT!!! *someone 'slipped up', & they want to COVER THEMSELVES!!!

This fella's smart....and ALL good advice given by everyone here. Squeeze....I know you've heard of 'getting blood from a stone'. STAND FIRM. They wanna' 'play'...they CAN PAY!

Filter - What Do You Say (Lyric Video) - YouTube

***LIKE I said - the FACT they you have a 'request to SIGN an addendum' - ***AFTER-the-FACT***says to me that 'they've screwed themselves' & NOW are hoping to TIE UP THE LOOSE ENDS that THEY THEMSELVES did not 'buttonhole' in the first place.

MONEY TALKS, you know what walks. *hold out your hand & say TLC! *Cheers...somebody did a 'big oopsy-daisy'!

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as one light lights another, nor grows less - so nobleness enkindles nobleness. MARCH ON>

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