Help out the Little Guy: Reserve your Shallow Rights!!

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Comment by king john on August 22, 2009 at 9:42am

baron, pbol needs help with pugh. i think you're the man for the job !
kj

Comment by Caliente on August 18, 2009 at 8:15am

Have heard of interest in shallow rights in East Bienville.

Comment by Caliente on August 14, 2009 at 7:02am

This is becoming important as companies move east of the "core"

Comment by Caliente on July 6, 2009 at 2:07pm

vertical pugh clauses also can be written to release all depths above and below not only the deepest well drilled, but fine tuned to read release above and below the deepest producing formation.
It's all a matter of contract; and there is freedom of contract.

Comment by Horseshoe Girl - a1 on July 6, 2009 at 12:07pm

As a Depth Restriction (to reserve shallow rights), actual measurement will suffice, such as "Reserved and excepted from this lease are all depths from the surface of the earth to a depth of 10,400 feet." A Depth Restriction will reserve the shallow rights effective immediately.

A Vertical Pugh Clause, however, should refer to the formation and state stratigraphic equivalency of a relative well, as others responding to this blog have noted. When worded accordingly, the Pugh Clause will release all depths that are 100 feet below the deepest depth drilled upon the expiration date of the Primary Term of the Lease.

In other words, shallow depths can be reserved from the date of the lease, whereas deeper depths reserved via a Vertical Pugh Clause revert back to the Lessor after the lease expires. You can lease a reserved shallow depth next month, but you cannot lease below HNVL Shale until your current lease has expired. This is generally how it works. As always, there is more than one way to skin a cat, so if your neighbor's wife's cousin's brother-in-law's great uncle signed a lease(s) that worked differently then so be it. (For example if the great uncle executed a "TOP-LEASE" that would change the rules of the conventional rule of thumb -- necessity is not just the mother of invention, for O&G's its the mother of loopholes as well.)

Also, just because a clause is labeled as a "DEPTH RESTRICTION CLAUSE" does not mean that it is NOT a Vertical Pugh Clause. The verbage concerning "100' feet below deepest depth drilled" being released upon the the expiration date of the lease is what makes the clause a Pugh Clause. How the clause is written, NOT how it is labled, is the trump card. Beware of this and read through and understand your clauses and addendum clauses as they are written. I hope this is helpful.

Comment by Caliente on July 2, 2009 at 4:42pm

I have probably more questions/concerns than answers. I had thought about this very topic and discussed it last summer when all this started getting hot. My initial thought was definitely, I'm leasing each producible formation. I'm not just giving the formations away. Second, I considered leasing shallower depths early on and just waiting on the deeper rights. Third, then I became concerned that may hurt me in negotiations on deeper rights. Fourth, there are issues of implied warranties against interference. So, If I lease CV first and then HS, CV holder has priority rights to surface (assuming no surface lease). So, a subrogation of that right would have to be included. If I lease HS first, then CV, well, the HS surface rights will prime the second lease and the CV lessee will acknolwedge that in the lease of CV. In addition to surface rights, there may be subsurface interference issues; I don't know---need some "formation" experts.

Comment by Skip Peel- Independent Landman on July 2, 2009 at 3:54pm

king john. I think it's not a question of "can the surface be shared by multiple operators to fully develop varying formations?" It's a question of "will they have disputes and how are those disputes handled". In other words, you don't leave that issue up to interpretation. You need specific language in a lease to avoid it. If possible.

Comment by The_Baron on July 2, 2009 at 3:51pm

Still have a place to put the rig. However, directional drilling is more expensive, it is normally used to drill under water bodies (lakes & rivers). The best way is to place the rig as close to where your target is.

Comment by king john on July 2, 2009 at 3:40pm

with directional drilling wouldnt the surface issue be somewhat a mute point, im not talking horizontal, but kick out drilling.

Comment by The_Baron on July 2, 2009 at 3:33pm

Skip, When the smaller operators do leasing they tend to already know what we are going after. A geologist didn't just throw a dart at a map, they have looked at a specific formation and determined where they want to drill. Granted, the more we can lease (verticaly) the better. We were involved in a well about a year ago, the cotton valley tested wet, but they were able to come up and produce out of the Hosston. It wasn't a great well, but it sure beat P&A.

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