negotiations and agreements - ou lawjay.law.ou.edu/faculty/eking/oilgaspractice/fall...
TRANSCRIPT
I don't know about you, but this
would certainly slow me down!
People slow down and actually try
to "straddle" the hole.
This is an actual speed control
device that is currently in use.
It is MUCH cheaper than speed
cameras, radar guns, police
officers, etc.
Joint Operating Agreement
• An agreement between or among interested
parties for the operation of a tract or
leasehold for oil, gas and other minerals.
• This type of agreement is frequently entered
into before there has been any development.
• Typically the agreement provides for the
development of the premises by one of the
parties for the joint account.
• The parties to the agreement share in the
expenses of the operations and the proceeds
of development, but the agreement normally
is not intended to affect the ownership of the
minerals or the rights to produce, in which
respects, among others, the joint operating
agreement is to be distinguished from a
unitization agreement and from a mining
partnership.
Non-Consent Provisions
• An affirmative election by a working
interest owner not to participate with
his/her working interest in the drilling of
a well. Under a JOA, the working interest
owner will have 100% of his/her interest
returned/re-instated/come back in after
400% Payout on the well (4 times).
• Non-Consent Interest
The name which has been applied to a form of
carried interest held by non-consent parties
under a widely used form of operating
agreement.
A share of the working interest in a drilling and
spacing unit whose owner does not consent to
bear his proportionate share of the costs of the
drilling and operation of a well, and which
interest is picked up by others under the JOA
who elected to participate with their
proportionate share of the “non-consent
acreage.”
• Non-Consent Party
A party to a joint venture, a joint operating
agreement, or a pooling or unitization
agreement who does not agree in advance to
participate in drilling, reworking, deepening, or
plugging back of a well.
Under such circumstances, the interest of the
non-consent party becomes subject to a non-
consent penalty.
• Non-Consent Penalty
A penalty against a party to a joint venture, a
joint operating agreement, or a pooling or
unitization agreement, or a pooling order of a
state agency who did not agree in advance to
participate in drilling, reworking, deepening, or
plugging back of a particular well by the
operator or another party to the agreement or
agency order.
The penalty under a JOA is expressed as a
percentage, in Oklahoma typically 4 times the
recovery of the amount expended as to this
non-consent interest (400%).
Industry practice in voluntary pooling
agreements between lessees calls for non-
consent penalties ranging from 200 to 400
percent for development of wells, at lease 300
percent for most exploratory (wildcat) wells,
and in very expensive areas, particularly
offshore operations, as much as 1,000 percent.
With respect to pooling or unitization orders,
the non-consent or risk penalty may be fixed
by statute, or the statue may give discretion to
the agency to set the penalty within a
determined range.
The statute may define the costs subject to the
risk penalty with some specificity, or it may
leave the terms rather general, with the
agency having the authority in either instance
to resolve disputes as to costs.
Casing Point Election
• A right to elect whether a party wants to
participate in a completion attempt.
After the well has reached casing point or
liner point.
Overhead
• A term employed loosely in the oil and
gas industry to describe a variety of
expenses.
• Monthly overhead is the amount paid to
the operator under the terms set out in
the JOA.
Joint Interest Billings
(JIBs)
• Statement attached to a check disclosing
well names, month of expenses, total
expenses, and venturer’s shares.
• JIB’s reflect an owner’s proportionate
share of all costs associated with a well
for a one month period (an invoice for
those charges).
Area of Mutual Interest
Agreements
• An agreement between or among parties
to a farmout agreement or a joint
operating agreement, or other
agreement by which the parties attempt
to describe a geographical area within
which they agree to share certain
additional leases or other interests
acquired by any of them in the future.
Farmout Agreement
• A very common form of agreement
between operators, whereby a lease
owner not desirous of drilling at the time
agrees to assign the lease, or some
portion of it (in common or in severalty)
to another operator who is desirous of
drilling the tract, where there is no cash
involved in the transaction.
Right of Way Agreements
• An agreement whereby one party acquires the
rights to cross a surface owner’s land for a
specific purpose, e.g. for a pipeline, for a road,
for a utility, for underground gas storage.
• This is a right to use the land for a specific
purpose, but does not give ownership of the
land to the right-of-way owner.
Purchase and Sale Agreements
• An agreement for the purchase and sale of oil
and/or gas produced from designated leases,
setting forth the terms and conditions of
purchases and sale, and requirements as to
quality and condition of the product and
measurement of quantities.
Habendum Clause
• It is agreed that this lease shall remain in force
for a term of __________ (___) years from
date (herein called primary term) and so long
thereafter as oil or gas, or either of them, is
produced from said land or lands pooled
therewith.
Depth Clause
• At the end of the primary term hereof, this
lease shall automatically terminate (1) as to all
of the leased premises except lands located
within the boundaries of a proration unit,
drilling unit, spacing unit, or pooled unit, as
the case may be, on which is then located a
well producing in paying quantities, whether
actually producing or shut-in, or upon which
operations are then being conducted in
accordance with this lease; and (2) as to all
depths below one hundred feet (100’) below
the stratigraphic equivalent of the deepest
formation penetrated on the leased premises
or on land pooled therewith, unless this lease
is otherwise maintained as to such outside
lands or deeper depths as may elsewhere be
provided herein.
Shut-In Gas Royalty Clause
• If at any time or times after the expiration of
the primary term this lease is being
maintained in force and effect by a shut-in gas
well for a period of ninety (90) consecutive
days, then Lessee may pay or tender to the
credit of Lessor at the address set out herein,
a sum (called shut-in royalty) equal to the
amount of $20.00 per acre for the land then
held by Lessee under this lease and such
payment shall continue this lease in force and
effect for a period of one year from
commencement of said ninety (90) day
period. Upon like tenders or payments
annually, on or before the expiration of the
last preceding year for which such payment
was made, this lease shall continue in force
and effect for successive one year periods as
to the lands covered by and included in the
lease at the time the respective payments
or tenders are made. However, this lease may
not be maintained solely by the payment of
shut-in royalty after the expiration of the
primary term for more than two consecutive
years immediately thereafter, or for shorter
terms at various intervals not to exceed two
years in the aggregate. Should the primary
term be extended by the payment of shut-in
royalty for two (2) years past the primary
term, this lease will terminate and Lessee
shall immediately file a Release of record in
the Office of the County Clerk/Registrar of
Deeds in ________ County, Oklahoma, and
furnish Lessor a recorded copy of said Release.
Shut-In Gas Clause
• Lessee shall pay or tender a royalty of Five
Dollars ($5.00) per year per net royalty acre
per well retained hereunder, such payment or
tender to be made, on or before the later of
ninety (90) days following the date of shut in
or the anniversary date of this lease during
the period such well is shut in, to the Lessor.
When such payment or tender is made it will
be considered that gas is being produced
within the meaning of the entire lease.
Delay Rentals
• If drilling operations or mining operations are
not commenced on the leased premises on or
before one year from this date, this lease shall
then terminate as to both parties unless
Lessee on or before the expiration of said
period shall pay or tender to Lessor, or to the
credit of Lessor in ______ bank at _________
or any successor bank, the sum of _________
dollars ($_____), hereinafter called “rental”
which shall extend for twelve months the time
within which drilling operations or mining
operations may be commended. Thereafter,
annually, in like manner and upon like
payments or tenders the commencement of
drilling operations or mining operations may
be further deferred for twelve months each
during the primary term. Payment or tender
of rental may be made by check or draft of
Lessee delivered or mailed to the authorized
depository bank or Lessor (at address last
known to Lessee) on or before such date for
payment, and the payment or tender will be
deemed made when the check or draft is so
delivered or mailed. If said named or
successor bank (or any other bank which may,
as hereinafter provided have been designated
as depository) should fail or liquidate or for
any reason refuse or fail to accept rental,
Lessee shall not be held in default for failure
to make such payment or tender until thirty
days after Lessor shall deliver to Lessee a
proper recordable instrument naming another
bank to receive such payments or tenders. He
above named bank or any other bank which
may be designated as depository shall be
Lessor’s agent. Drilling operations or mining
operations shall be deemed to be commended
which the first materials is placed on the
leased premises or when the first work, other
than surveying or staking the location, is done
thereon which is necessary for such
operations.
No Deduction Clause
• It is agreed between the Lessor and Lessee
that, notwithstanding any language herein to
the contrary, all oil, gas or other proceeds
accruing to the Lessor under this lease or by
state law shall be without deduction for the
cost of producing, gathering, storing,
separating, treating, dehydrating,
compressing, processing, transporting, and
marketing the oil, gas and other products
produced hereunder to transform the product
into marketable form; however, any such costs
which result in enhancing the value of the
marketable oil, gas or other products to
receive a better price may be deducted from
Lessor’s share of production so long as they
are based on Lessee’s actual cost of such
enhancements. However, in no event shall
Lessor receive a price that is less than, or
more than, the price received by Lessee.
Warranty Clause
• This lease is made by Lessor without warranty
of title, either express or implied, except as to
conveyance or encumbrances by, through, or
under Lessor, but not otherwise. Lessor
agrees that Lessee shall have the right at any
time to redeem for Lessor by payment any
mortgages, taxes, or other liens on the above-
described lands, in the event of default of
payment by Lessor, and be subrogated to the
rights of the holder thereof.