Replies to post #6401 on Black Dragon Resource Companies Inc (BDGR)

[localoil]

"I am use to all drilling rights being part of the lease(s), but I have no lease experience in La. It seems odd (to me) that you could have a lease, but limited to depth.

Can you expand on what is typical in La?"

Probably the great majority of older leases were all depths and provided for a 1/8 royalty. Over the years, as these leases were assigned, the assignor (the guy doing the assigning) would retain something for himself when he conveyed to the assignee (the guy who is on the receiving end). He could retain certain depths and/or some override, or not assign all of the lands covered. Imagine this happening over and over for 80 years and you can see how complicated running title could be.

New vintage leases have base royalty from between 3/16ths (18.75%) up to 22%, or higher, maybe 25%. A farm in may only have a 70% NRI but that's about the economic limit.

Production is necessary to hold the lease beyond its initial or "primary" term.

In the past 30 years Pugh Clauses have become normal when granting a new lease.

Example: Vertical Pugh Clause. "At the expiration of the primary term this lease will automatically expire as to all depths 100' deeper than the depth being then produced."

Horizontal Pugh Clause: "At the expiration of the primary term this lease will automatically expire as to all lands not then included in a govermentally approved producing unit."

To make it even more fun there is this thing called "Prescription" in Louisiana. If I sell you my land but retain the mineral rights, and there is no drilling to "interrupt" the running of prescription, then the minerals will automatically, (without the necessity of filing any paperwork) will revert to the owner of the surface AT THAT TIME. If on the last day of the 10th year somebody spuds a well in a good faith effort to obtain production of oil or gas in paying quantities then prescription is interrupted and the ten years starts all over again.

Production continuously interrupts the running of the 10 year prescriptive period so you could sell you land, reserving the minerals thereunder, and the minerals wouldn't pass to the surface owner until ten years after the date of last production.

[dragon man]

what i think. in la there are a lot of cap wells that were strpper wells and when oil price in 90 or late 80 start to get low these well were not make money. they were plug. now oil high , somebody interest in old wells you have on your property6 and they want lease these land wells are on. there are zone never test to see what they had when well making oil. these zones have now prove to be oil bearing sands. you want more money for rights to let some one drill done hole and test these new zone. so when you lease the wells out, you sign papaer saying that you can only drill so far down. below csrtain feet, that does belong to you. good example of this was when black dragon bought rights to drill in caddo lake. they only went so far.when they were going to buy the whole company, they had right to drill to china then.