RANCHING Business
When Oil and Gas Production Stops By Gilda V. Bryant
O IL AND GAS WELLS MAY BE OPERATED FOR MANY YEARS.
However, mineral leases terminate when oil and gas reserves are exhausted. When this oc-
curs, landowners can take several steps to protect their surface, underground water and livestock. David Wallace, rancher, mineral owner and oil/gas
attorney, is also an instructor at Texas Christian Uni- versity (TCU) and the TCU Energy Institute. He reports that over time oil and gas deposits run low, causing overhead expenses to exceed profi ts. Larger companies often sell the lease to smaller operators. These operators have usually been in the oil busi-
ness for years, and may tend to extend the life of the well by cutting corners. For instance, they may fail to maintain roads or equipment, repairs that are benefi - cial to the landowner. As long as there is a profi table well, the lease will be
in effect. There is often a provision in the lease known as the “drill or rework clause.” When there has been no production, the company has from 30 to 90 days to regain productivity by either drilling a new well or reworking an existing well. Market prices rule in the oil and gas business. If they
68 The Cattleman November 2016
dip low enough, the operator may utilize the lease’s “shut-in royalty clause.” This allows the operator to pay the royalty owner to discontinue well production for a certain amount of time. When the market improves, production begins again. “Originally used for gas wells, now oil companies
try to use that for any well that’s shut-in at any time, for any reason,” Wallace explains. “When you get a shut-in royalty check, take it to your attorney before you cash it. Make sure the shut-in is appropriate. If the shut-in is inappropriate, the company may lose the lease. If it’s appropriate, they can hold the lease without production for a period of time.”
Restore the surface? When the last well in a lease has no production,
the lease expires. Under Texas law, the lessee’s last required act is to plug the dry well. There is no duty to restore the surface unless it was written into the lease or surface use agreement (SUA). Most leases written in the last 30 years will usually
have a provision that demands the lessee restore the premises. Unfortunately, most of the older leases (ex-
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