Replies to This Discussion

Permalink Reply by Markus on May 31, 2013 at 2:07am

Paul:

I am not sure I agree with you on the "unforeseen, undreampt of, new situation" bit.  

People have known for many many decades that there was a large (and possibly more than one) formation deeper down in Eastern Ohio but there was uncertainty about how it could be tapped technologically and in an economic manner. 

The concept of the Pugh clause has been around for over 50 years and therefore the concept was available for use by anyone who wanted to think through what they were entering into.

I think that many landowners that entered into these leases back in the 1970s and early 1980s did so without really thinking through what they were agreeing to - I guess one could argue that greed prevailed.  And many landowners were very happy with the deal they struck, and enjoyed the benefits. The energy crisis was something many wanted to cash in on.  One cannot forget that.  

Operators put their money at risk to drill those shallow wells, just as they do today.  Many landowners took the short sighted approach.  

There are good and bad operators out there - it isn't fair to penalize those that have held their side of the bargain which many have done through the good years and long durations of very bad years.

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Permalink Reply by Paul Martinelli on May 31, 2013 at 2:12am

I have a HBP lease dating back to 1899.....do you really think that back then the concept of drilling multiple wells from a 5-10 acre pad was ever a possibility? Do you think that the need for large retention ponds, Millions of gallons of water, huge pipelines.....etc   was ever considered?

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Permalink Reply by Markus on May 31, 2013 at 2:16am

Has the owner of the well paid you royalties as stipulated in the lease?  Is the well still producing?  Has the operator honored the terms of the lease?  If so, tough luck.  If not, sort it out.

Why does the state have to get involved in a contract between two parties?  More government intervention?

Permalink Reply by Jim Litwinowicz on May 31, 2013 at 2:26am

One could argue that greed prevailed but I would argue strongly against that proposition. Landowners were not greedy when they were signing leases back in the '70s and '80s  Most of those leases then were for a dollar an acre, not exactly the money that sprouts greed. And the royalties for most wells weren't a whole lot better.

It wasn't greed that encouraged people to sign but just some cash to help pay the bills.  Especially when one looks at those ties and realize thats when the steel and auto industries collapsed while energy and food prices skyrocketed. Add in the fact that property taxes were also accelerating and you will understand that for many landowners/farmers an oil and gas lease was more about survival or maybe a cushion.

The problem is that most landowners were both uneducated on issues and were also trusting people.  An d they didn't have the benefit of modern information sources like the internet and university out reach services.  They signed the leases that were offered because they believed they were the industry standard.

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Permalink Reply by Markus on May 31, 2013 at 2:36am

All fair points.

As you probably remember, in many cases the operator was a local outfit with a rig and they were running the gamut of risk to drill what they could where they could.  

Many really struggled to keep things together when prices were depressed, some honored their obligations, some did not.  Those that did not can be pursued and held accountable today.

I am HBP as well but over the years I have gotten to know the guy that owns the wells on my property. He works his tail off to keep the two dozen or so wells he has operating and producing.  When I call him, he comes.  When ODNR nitpicks, he complies. He keeps his costs down by doing much on his own and I know that during the tough times, he mortgaged himself big time to keep afloat.

I am only saying that he shouldn't be arbitrarily penalized by some state legislature or some judge.  I stay in touch with him, we keep the communication open and he honors the terms of his lease.

Years ago he offered to give some of his wells away to landowners in my area and they refused the deal because either they a) did not want the liability of the well or b) couldn't come up with the bond money required in cases where more than one well was on their land.  That was my situation but I do not fault him for my own decision.

And now those same neighbors are arguing like Paul.  They had the chance to take it all back years ago but they chose not to...now they want the upside. It simply isn't right.

Permalink Reply by Paul Martinelli on May 31, 2013 at 3:30am

Markus,

 

I'm not complaining at all....

 

I'm just stating that tit can be argued that these old leases were intended for (to simplify it) Vertical wells only....and that leases for horizontal wells should be ammended....and fair to all 3 parties involved.

Permalink Reply by 0i7okn54zwbdo on May 31, 2013 at 4:55am

"As I said above, if what you say is true about the county, it probably says more about the Mahoning County voters then the judges. "

It has nothing to do with what I say, it's a historical fact.  My county is full of bumbling idiots and crooks.  No matter how many times I--and people of a like mind--put up good candidates we are shouted down by the majority, which is sadly comprised of nitwits.  

"Would never pay (or advise anyone else to pay) an extortionist on red cent. "

Many people agree with you.  Some people have different attitudes and just want to get deals done as quickly as possible.  There isn't a one size fits all solution until there's legislation that clarifies the issue.

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Permalink Reply by Ben Campbell on May 31, 2013 at 6:27am

Marcus you and I don't always see eye to eye but you are nothing but spot on with your comments about Mahoning County!!

If only rural Mahoning County could remove itself and start over.

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Permalink Reply by searcherone on May 30, 2013 at 11:01am

David, you have brought up one of the most troublesome questions regarding HBP wells in the State of Ohio;  Having dealt with the issues of three shallow wells for the past thirty years there are no binding answers to the questions that surround them.  IMHO Ohio landowners need to see legislation passed outlining some parameters for what is a producing well, some would say it already exists, but I disagree. Landowners I believe should receive a minimum payment per well per month plus the royalty had we landowners had that most of the "little" O&G producers would not now be making millions on supposedly HBP leases.  I will be cashing my royalty check for three producing shallow wells tomorrow for $40, yes that is no mistake forty dollars, are those wells producing in paying quantities?  This is one of the issues landowners need to take ACTION on, on an individual basis and as a group. 

As Jack Straw, a frequent contributor to this site says, All in my humble opinion.

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Permalink Reply by The Hiker on May 30, 2013 at 12:18pm

I would be curious if the well(s) in this discussion had documented production in every year.  There is a basic search you can do yourself on the ODNR web site, but it only lists yearly production by well #.   If the well did not show production for a given year, did the oil company make a "shut-in" payment for the period the well was not producing (for whatever reason; maintenance, gas price, etc...).  Assuming the lease contained shut-in language, they may have violated the lease terms if no payments were made during the period of no production, and you have something to go after them with.

All to often, landowners with old wells will receive a check in the mail for "production" from a well that had not been producing for years, and assume that they are still HBP.   Not true.   Good stuff for an attorney to chase down.

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Permalink Reply by David Brooke on May 30, 2013 at 9:04pm

More good comments.  Thank You.  Yes, legislation would be nice to resolve these issues.  Until then, if it happens, we must rely on the courts to resolve them.  While I agree that contracts should be binding and not at the whim of the courts to overrule, I believe this is a special circumstance, if not unique.  Technology has enabled a significant expansion in this area recently ( past several years ).  In the past, say 30 years ago, this expansion was not even dreamed of IMHO. Therefore no language was necesary in leases for shallow wells to limit depth and strata formations.  Granted, some shallow leases ( as I understand it ) did have some language.  Unfortunately, the lease written & signed by my grandfather ( an attorney ) (RIP) has no such language and I'm sure it would have as he was always rather forward thinking.  FYI, the wells are In Berlin Twsp, Mahoning County.

  John, thanks for reminding me of HPB.  I did know that, just forgot.  Thanks

  Searcherone & The Hiker - I have the ODNR completion reports through 2012.  The problem is, the infomation they receive from the O & G co is a total amount for all wells as there is a single resevoir holding tank on the property.  So, ODNR takes the number provided as a total and divides it between our 4 wells for the individual well reports.  To make matters worse, there is no language in the lease to force the O & G to provide the individual production numbers by well.  I have asked and they finally seem to be at leasts open to providing them, but we'll see.  There is language in the lease to cover times of no production, but based on the numbers available to me, the wells have produced every year, eventhough the amounts have gotten smaller and smaller. 

Thanks again.  Keep the comments coming.

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Permalink Reply by Markus on May 30, 2013 at 10:04pm

Hi David:

Good thread here.

One thing that I have missed or you have not stated is how the specific terms in your lease read.  Does it reference "payable production" or something else?

I have seen many of those older lease (from the late 1970s and early 1980s) and most that I have seen read either "and thereafter so long as oil or gas is produced from the lands lease and royalties and rentals paid; or "and as much longer as oil or gas is found..."

I think that in either of the above scenarios it would be tough to argue failure to comply with the lease even if the production amounts are low.  Remember, that as one moves out on the production curve over time, it flattens so it is no surprise that many of these shallow wells have production history going way way back.  

I really think that in the above case, it simply doesn't matter what it costs to operate vs. what it produces in revenue to be a valid well on a valid lease.  Royalties should be paid off the top anyhow so to a landowner, the issue of costs is irrelevant.

In any event, I wish you well with your lease. I am sure that with focus, you will come to some kind of resolution that meets your needs.

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