Oil/Gas/forcing low production well to be plugged
Several family members have inherited mineral rights to a very old, but low producing well in an area that has seen significant success with new drilling. We were approached by a "landman" that suggested that we try to convince or sue the operator of this well to plug it. The terms of the current lease stipulate that if the well is plugged, several more acres revert back to the family. This increase in acreage along with the strong possibility of signing a new lease and highly producing well could be very lucrative. As I understand it, the guidelines of what is considered a well that needs to be plugged is not clearly defined.....sort of a judgement call. So I guess that suing to plug the well is not a guarantee that it will be plugged. The landman suggests that he would pay for the lawsuit to get the current well plugged, if we use his services to garner higher lease money per acre and split that money with him. This seems highly unusual to me and I wanted to know if this was customary. Have you heard of leases that stipulate if a well is plugged, then leased mineral right acres reverting back to someone else? Even with low production, the owners of the 80 acres that would revert to the family would probably fight the plugging as well. What would your advice be in this circumstance?
"Split" the money? As in 50/50? I would say no, that is not a good deal for you. I would rather see you hire an attorney to sue (or threaten to) the oil company than give some "landman" (who may or may not be an attorney) 50% of any bonus you later receive. If you go that route, or even with an attorney who agrees to a percentage, I would spell out the terms you would require in a lease rather than agreeing to let them get "any" lease, and specify a time limit after the well is plugged (if they are successful in getting it plugged) of say 12 months for the attorney/landman to get your minerals leased after/if the well is actually plugged. If they haven't gotten you leased within that time, then you owe them nothing.
I know an attorney who has been successful at getting a well I had plugged, and he agreed to 15% of any bonus he could later get from a lease. I gave him 18 months actually, and he wasn't able to get a lease within that time (the area had cooled off considerably during the time of his efforts to get the well plugged) so I got the well plugged for free basically. A good deal for me but I would have been happy to pay him the 15% had he gotten the minerals leased within the time allotted. Going rates were $2500/acre for a while there, and I was making about $50/month in royalty from the well, if that.
Oh, and if the well is plugged, the lease will not "revert" back to someone else, it will simply expire due to lack of production and the owner of the minerals would then be free to lease again.
To get the well plugged you'd have to convince the oil company (or perhaps a judge) that the well was no longer producing enough to cover the costs of actually getting the oil and/or gas out of the ground...i.e. not producing in "paying quantities." For a gas well spaced on a 640-acre unit I would guess that production of anything less than 500 MCF per month would not cover those costs and thus with such a well you'd have a good argument for a plugging.
A good attorney would insist that the company show evidence that the well IS producing in paying quantities if they refused to plug it. I doubt a 500 MCF per month gas well operator could provide that proof and so might agree to plug the well or at least release all but the wellbore back to you so you could lease to someone else.
To elaborate on that last sentence, the company may not agree (without being sued) to release your entire lease and plug the well, but they may agree to release all BUT the current wellbore, thus giving you the ability to lease the acreage remaining outside the wellbore to someone else.
Hope this helps you out.
Frederick M. "Mick" Scott CMM RPL
The Mineral Hub