Legal Definitions - well-completion clause

A well-completion clause is a specific provision found within an oil and gas lease agreement. This clause is designed to protect the significant investment made by a drilling company (known as the lessee). It grants the company the right to continue and finish drilling a well, even if the original lease term is about to expire or has technically ended, provided that they started the drilling operations before the lease's termination date. Furthermore, if the completed well successfully produces oil or gas, this clause allows the company to maintain the lease for as long as that production continues, ensuring their efforts and capital are not lost due to a lease expiration.

• Imagine a company called "Desert Sands Exploration" has a seven-year lease on a large desert tract. With only a month remaining on their lease, they begin drilling a new exploratory well, having obtained all necessary permits and approvals. Due to the extreme depth and challenging geological conditions, the drilling process extends several months beyond the original seven-year lease term.

  How it illustrates the term: The well-completion clause in their lease would be crucial here. It allows Desert Sands Exploration to continue drilling past the lease's official expiration date because they initiated the work before it ended. If they successfully discover and produce oil or gas, this clause then enables them to maintain the lease and continue production, protecting their substantial investment in the drilling operation.

• "Mountain Peak Energy" holds a lease on a mountainous property that is set to expire on June 30th. On June 10th, they commence drilling a new well, believing they can complete it within the remaining weeks. However, they encounter an unexpected underground cavern that requires specialized equipment and significantly slows their progress, making it impossible to finish drilling by the end of June.

  How it illustrates the term: The well-completion clause in Mountain Peak Energy's lease ensures that because they started drilling before June 30th, they have the legal right to continue drilling into July and beyond until the well is completed. If that completion results in a producing well, the clause further allows them to keep the lease active for the entire duration of that production, despite the initial lease term having passed.

• A farmer, Mr. Henderson, leased a portion of his land to "Rural Gas Ventures" for a four-year term. Rural Gas Ventures begins drilling a new well in the final two months of the lease, anticipating a quick completion. However, a series of equipment malfunctions and severe weather delays mean the drilling operation requires several more weeks to reach the target depth and begin production.

  How it illustrates the term: The well-completion clause protects Rural Gas Ventures in this scenario. Because they initiated drilling before the four-year lease expired, they are permitted to finish the well, even if it takes them past the original lease end date. If the well proves to be productive, the clause allows them to continue operating on Mr. Henderson's land under the terms of the lease, ensuring the viability of their project even after the initial lease period has concluded.