Many landowners signed an oil and gas lease during the “boom” years from 2009-2012 and received a hefty bonus payment at the time of the signing.
Now that time has passed and nothing more has happened on their land, these same folks are wondering what happens next. The answer depends on several factors.
The first step that must be taken is to determine if production operations have commenced. Under most leases if production operations have commenced during the primary term of the lease, the lease will transition into the secondary term, the length of which will be governed by the life of the well. The term “production operation” is usually defined in the lease and must be carefully scrutinized. We have seen surveying and staking defined as production operations in some leases, which may have the effect of extending the lease into the secondary term once accomplished.
If production operations have not commenced on the actual lands subject to the lease, the landowner must then determine if their land was pooled with other land to form a drilling or production unit. Most leases permit unitization, or pooling, and once formed drilling operations conducted on any lease in the unit will extend to all leases in the unit.
Most prudent producers will send each landowner participating in the unit a document called a “Declaration of Unit” or some other similar name. This document will identify each lease included in the unit and each participant’s percentage share in the production of the unit. It will also inform each participant how much of their land will be brought into the unit which, in many cases, is less then the entire tract under lease.
Unfortunately, not all producers are prudent. A trip to the county courthouse may be required to see if a unit was formed and a Declaration of Unit was filed.
Absent the commencement of production or a paid extension of a lease, the lease may have lapsed. In our experience, producers generally do not notify landowners that the lease has lapsed. As a matter of fact, in many cases a landowner’s record title may be clouded because the producer filed the lease when it was first signed and never filed a release of the lease when it expired.
A cloud on a landowner’s record title due to an unreleased lease is not catastrophic, but it should nevertheless not be ignored.
We generally advise landowners to request the original lessee/producer to record a release of the lease once it is established that the lease has lapsed. Our experience is that a landowner will most likely be unsuccessful when making this request to the big land grabbers such as Shell/SWEPI and Chevron since they are more or less gone from Western Pennsylvania.
If you believe that your lease has expired, call us and we can discuss your options with you. You may decide to retain us to remove the cloud on your title so that you can have peace of mind. More important, you may want your title to be clear so that you will be leased when active leasing begins again.