THIS IS AN EXTRACT FROM http://www.gdhm.com/images/pdf/jbm-ogleasechecklist.pdf
leases covering tracts of significant size, landowners have developed more sophisticated versions of Pugh clauses, usually referred to as "continuous operations"or "continuous development" clauses. The idea behind such a clause is that the Lessee, after having a reasonable time to explore and develop the leased premises, should be entitled to retain under lease only those parts of the leased premises necessary for its production of wells on the leased premises. The importance of these provisions depends largely on the size of the tract being leased. If the tract is relatively small (less than 200 acres), such a provision is probably not necessary. For larger tracts, a continuous operations clause requires the Lessee to release portions of the leased premises not included within "production units" designated around producing wells, at some time after the end of the primary term. If the Lessee is engaged in drilling operations at the end of the primary term, the time when Lessee must designate production units is postponed for as long as the Lessee continues to drill wells on the leased premises. The continuous operations clause usually provides that, in order for the Lessee to postpone the time for designating production units, it must drill wells consecutively with no more than an agreed number of days (90 to 180) between the completion of one well and the commencement of the next well. Once the Lessee has designated production units around each producing well and released all lands not within a production unit, each production unit stands on its own as a separate lease, and production from each well holds under lease only that part of the leased premises within its production unit. A continuous operations clause should specify maximum production unit sizes, depending on the classification of the well as oil or gas and the depth of the well. It should also address how production units can be configured (e.g., as nearly in the form of a rectangle as possible, whose length is no more than twice its width).
This is the type of considerations that go into a US O&G Lease. So yes, Lani and others could be onto something. The main point is the continuous drilling part and if the expiration of the primary lease dispels the legal issues with Petro Raider than there could be an ann of a farm-in/JV and money at hand to drill a well every 3-6 months (depending on what is in the lease). I would also gather that this would retain the entire acreage if the continuous drilling occurred. Eventhough I got out I will be keeping a very close eye on developments.
GGP Price at posting:
10.0¢ Sentiment: None Disclosure: Not Held
