Abandoned Well Property

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Abandoned Well Property

 

A common industry lease form currently circulating around Alabama grants to the lessee “the right at any time to remove all machinery and fixtures placed on said land, including the right to draw and remove casing.”  This clause presents problems in so far as it does not limit the removal right after the lease is terminated.

A negotiated lessor-friendly property removal clause that oil companies have accepted in Alabama is:

 

Within six (6) months after the termination of this Lease as to all or any part of the Leased Premises, whether by voluntary release pursuant to Section 8 [voluntary release clause], cessation of Continuous Operations under Section 2 [cessation clause]or any other cause:

 

(1)  Right To Remove Fixtures. Subject to Section 7.3, Lessee shall have the right to remove all fixtures and other property placed by Lessee on that portion of the Leased Premises as to which the Lease so terminates, including the right to draw and remove all casing; and all property and fixtures not so removed within that time shall become the property of the then owner or owners of the surface.

 

(2)  Removal Of All Lessee’s Property. If requested by Lessor, Lessee shall be obligated to remove all of its property from any portion of the Leased Premises as to which the Lease so terminates, and if Lessee fails to do so, Lessor may remove and dispose of such property and charge Lessee for the cost of such removal and disposition.

 

Some lessors want an option to purchase the well bore of abandoned wells on their leased premises prior to the termination of the lease.  An example of this type of purchase option is:

 

Purchase of Abandoned Well. Subject to Paragraph (c) of this Section;

 

(a)  Lessor is hereby given the optional right to purchase at salvage value, as hereinafter defined, any well drilled by Lessee at the time that Lessee desires to plug and abandon such well. Lessee shall give Lessor written notice of its intention to plug or abandon the well accompanied by a statement showing the quantity, weight and size of casing, tubing, rods and other equipment in the hole and the salvage value thereof, and Lessor shall have twenty (20) days within which to give Lessee written notice whether or not it elects to take over such well and, if so, what if any equipment in the hole it desires to purchase.

 

(b)  Upon receipt of such notice Lessee shall promptly deliver to Lessor an executed, itemized bill of sale covering the equipment in the hole which Lessor elects to purchase, all of which must be owned by Lessee and free and clear of any encumbrance (together with a release of all of its interest in the Well Tract for such well, made pursuant to the provisions of Section 2.3 relating to termination of the Lease as to Well tracts and to Section 15 [clearance of title upon termination of lease]) and Lessor shall pay to Lessee the salvage value of the salvageable material determined in accordance with the provisions of customary accounting procedures.

 

(c)  Lessor’s rights and Lessee’s obligations under this Section shall not be effective so long as Lessee maintains the Lease as to the Well Tract for such well by reworking or drilling operations as provided in Section 2.3.

 

Incidentally, the Mississippi Court of Appeals recently held that the abandoned well bore and well pipe belonged to the mineral estate, where the mineral estate had been severed from the surface estate. Douglas v. Denbury Onshore, L.L.C., 2011 WL 2323035 (Miss.Ct. App. 2011).

Copyright 2011 by Edward G, Hawkins. All rights reserved.