Others in industry would have acted to prevent

2. Others in industry would have acted
to prevent drainage
__________________________________
3. Drill offset well

Protection against Drainage
Third Party Drains
* Harmful to both lessor and lessee
* Shared interest : drill offset well
Lessee Drains
* Harmful to only lessor
* Conflict of interest : avoid drilling offset
well

Protection against Drainage
Lessor’s acceptance of delay rentals =
ratification of lessee’s activities =
waiver of implied rights?
Not successful defense for lessee
* Payment of delay rentals
eliminates need to drill,
not need to protect against drainage

Diligent Marketing
Market within reasonable time
of production
* When would reasonably prudent
operator sell?
Market at appropriate price
* Price acceptable to reasonably
prudent operator ?

Lease Negotiation Exercise
60-acre tract of land in Midland, Texas
Area of average productivity
Several energy companies interested
in leasing this land

Landowners
1. McKinley, Dong, Ryan,
Strickland
2. Hauglum, Cho, Luna
3. Fricks, Kupec V.,
Ramirez
4. Reeves, Carballar,
Valentine
Landmen
5. Graham,
Kupec N., Morreale
6. Price, Franey, Setlur
7. Lakhani, Chandra,
Thurmond
8. Roberson, Ashraf,
Shairali

In your role as landowner or landman:
* Identify five key lease provisions
that you want to negotiate before
signing lease
* Rank those provisions in order of
priority (from most important to
less important)
* Make changes and/or additions
to the language in those provisions
which you will present during
negotiations