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Permalink Reply by Kyle Nuttall on May 17, 2013 at 9:16am

Maybe I don't get exactly what you're suggesting, but I think a reasonable lease pretty much works that way, other than the performance bond.  If there's no automatic extension, and there's no well producing in paying quantities, and no delay rentals, then the lease expires.  Some leases in other parts of the country (haven't seen it in leases here other than the early 1900s) require development at a measurable pace or the lease expires.  We could start putting that kind of requirement back in.

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Permalink Reply by Mike Sero on May 17, 2013 at 9:19am

Kyle, I have seen leases were there was performance on amount of wells drilled, but not on the production.

Was basically set up as a PUGH, insense releasing anything not drilled or unitized

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Permalink Reply by Kyle Nuttall on May 17, 2013 at 9:23am

Hm.  So you're suggesting a clause that requires a certain amount of production, or the lease expires, or the bond is forfeit?  I may have to start trying for that.  One of these days maybe I'll run across somebody with a large tract of undivided minerals and be able to argue for that.  I mean, the Marcellus and the Utica are pretty well known formations.  They should be able to predict a bare minimum production number from either of those formations.

I doubt I'd be able to argue for that on a small divided mineral interest.

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Permalink Reply by Mike Sero on May 17, 2013 at 9:32am

There was a large land owner in Columbiana, Ohio. Very large, 4000+ acres, signed a lease in early 2000's - addendum had in there that they had to drill 5 producing wells during term - they drilled 6 wells, 2 only producing rest plugged and dry - per terms of the addendum they had to release the lease at end of term - it was in laymans terms - that clear - they could still operate wells etc....

They sold lease to Cheasepeake - CPKE tried to enforce whole lease and even sent renewal check - Landowner sued - WON - well CPKE, settled realizing that they had no case - Landowners just happen to be one of the largest Angue/Beef producers in the USA. CPKE CEO, actually flew in his helicopters up there to meet them. 

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Permalink Reply by Kyle Nuttall on May 17, 2013 at 10:13am

Now that would have been a fun one to be part of!

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