NEESE, KEVIN J., Hatch and Parent, Santa Barbara, CA

ABSTRACT: Recent California Policy Developments for Oil and Gas Leases Concerning Nonproducing Wells and Proposed Well Operations

Lessors and surface owners are often concerned about oil and gas leases which are not producing in paying quantities or where there are nonproducing wells and facilities which restrict the use of their land and their lease income. Lessors who want to redevelop their lands and terminate the oil and gas lease have typically raised a claim under the lease's habendum clause for failure to produce in paying quantities, or claim an unreasonable or negligent use of the surface leasehold. Moreover, a lessor may institute a claim under the implied duty of good faith and fair dealing, which requires the lessee to consider the interests of the lessor regarding decisions concerning the oil and gas lease, or may file a claim pursuant to the reasonable and prudent operator standard adopted by the C lifornia courts.

Amendments to the California Public Resources Code, effective January 1, 1991, provide additional means for landowners to protect their interests. Sections 3206 and 3206.5 of the Code was initially sponsored by the Division of Oil and Gas of the California Department of Conservation and designed to address concerns by state and local governments regarding potential environmental and health and safety problems. These sections provide state officials the power to order nonproducing oil and gas wells plugged and abandoned if it is determined that the wells have no reasonable expectation of being reactivated. In addition, sections 3203 and 3277 were amended to allow the State Oil and Gas Supervisor to deny approval of proposed well operations until the owner or operator brings its existin well operations into compliance with the order.

AAPG Search and Discovery Article #90992©1993 AAPG Pacific Section Meeting, Long Beach, California, May 5-7, 1993.