Expert: Frederick M. - 10/18/2009

Question
QUESTION: Fred,
The addendum below was added to a oil & gas lease I signed with a landowner group. After reading it several times I am not sure if it was a good or bad clause for us. It is the complete wording. Thanks in advance.
(In the event a pooled unit is created which encompasses land located outside the lease premises and some, but not all, of the leased premises,
any drilling or reworking operations on or production from a well located on that pooled unit shall continue this Lease in full force and effect
but only as to that part of the lease premises contained within the pooled unit Upon five years after the expiration of the primary term and
upon receipt of written notice of Lessor, Lessee shall surrender such portions of teased premises not contained within a pooled unit and those
formations and hori>»ns 100' below the deepest formation penetrated.)


ANSWER: Stanley, short answer is it's not a bad clause for you. If the clause were not included, then in some states the lessee could hold ALL your leased acreage for as long as there was production on any portion of the unitized field, rather than just the portion that was actually physically included in the unit.

A "unit" normally encompasses all or parts of many leases and basically turns them all into one big lease. Your clause states that any portion of your lease not actually included in the unit will be released after five years and you would be free to lease the released portion to someone else.

Hope this helps you out.
Frederick M. "Mick" Scott CMM RPL
Timbercreek Mineral Company, LLC

---------- FOLLOW-UP ----------

QUESTION: Fred,
I read it as being five years after the primary term expires. We have a six year lease with CHK on 175 acres. If they included half our property in a unit could they hold the other half for five more years? And above in my original post the word Horizons was spelled incorrectly. I take the last sentence as meaning I would be free to lease 100-feet below the deepest formation penetrated even if the entire property was in a unit.
Thanks Again

Answer
Yes, five years after the primary term expires is how I read it, too; and yes, it seems they could hold ALL your lease for five years after the primary term expires. Last sentence says that five years after primary term expires you could lease your deep rights, as well as previously held acreage that was not included in unit.