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Amending and Revising Leases For Horizontal Development

H. Martin Gibson, Horizontal Oil & Gas Development (2012)

Amending and Revising Leases for Horizontal Development

Oil & Gas Leases.

1. Date.

The date of the lease determines the end date of the primary term. Generally, operations that have commenced off of a lease tract do not preserve the lease past the primary term and a horizontal wellbore that is intended to penetrate the lease will not preserve the un-penetrated lease.

However, the United States District Court for New Mexico reached a different result in a 2001 case.1 As an oil and gas lease was approaching the end of its primary term, the lessee, Chesapeake, was informed that a drilling zoning variance would not be granted for drilling on the leased tract due to its location near a residential neighborhood.2 Chesapeake purchased a three-acre parcel adjoining the leased tract to directionally drill a well from the surface of the purchased parcel to a producing formation within the leased tract.3 The proposed well was spudded on July 27, 1998 on the three-acre purchased parcel.4 The stated primary term of the lease expired on August 3, 1998.5 On August 12, 1998, the drill bit penetrated the subsurface of the leased tract.6

The court focused on two lease provisions in finding that the lease was extended by the commencement of operations off the leased premises:

Paragraph five of the Lease provides, in pertinent part, that Defend