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Monday, April 11, 2016

Attorney Shares Tips for Extending Undrilled Shale Leases

From Gas & Oil:
This price collapse has already financially impacted the oil and gas industry. Rig counts have diminished nationwide (and in Ohio), drilling permit applications have slowed, and drilling programs have been scaled back, or in some cases, eliminated altogether, as many producers cannot operate profitably in the current pricing climate. There are even reports of some producers shutting-in wells until prices rebound. Many producers are verging on bankruptcy, while others have already filed. Consequently, producers are looking to cut costs however they can.

This environment also created a dilemma for shale producers holding large blocks of undrilled acreage held by leases still in their primary term. With the drilling slowdown, many five-year primary-term leases are set to expire before wells can be started, and can only be extended upon payment of the original signing bonus. Many producers do not have the cash to pay another round of bonus payments to extend these leases. Thus, they face the choice of either losing large blocks of undrilled acreage or investing large sums of money to hold the acreage for another five years, without knowing when and if prices will rebound so as to make development profitable again. 
Faced with this problem, producers are approaching landowners and attempting to renegotiate their leases. Most often, producers ask landowners to amend their leases to allow the producer to make bonus payments in five one-year increments, instead of one lump sum payment at the beginning of the five-year extension term. Some producers are even trying to seek an extension for a reduced payment, or in certain cases, for no payment at all.
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