Lease Record Tracting

Legal Descriptions

The legal description in the original lease takes precedence: if no depth restrictions are stated, then the description is interpreted to cover all depths from the surface down to the core of the earth.

Any subsequent amendment or modification to the original lease legal description takes precedence over the original lease.

Any surface area or depth restriction stated in the original assignment of the leasehold interest takes precedence over any subsequent amendment or modification to the original lease insofar as the leasehold ownership is concerned passes from the Assignor to the Assignee.  In other words, if the lease contains more acreage or depths than what is assigned, then only what is assigned becomes owned by the Assignee.  All remaining acreage/depths remain owned by the Assignor.

Any change in type of leasehold ownership in a surface area or depth supersedes the original ownership.  Example: Assignee receives 100% WI in the SE/4 SE/4 and the records of Assignee are set up to reflect this.  Later, the Assignee becomes “Seller” and assigns all of its 100% WI to another party, limited to the wellbore only of the well proposed and drilled by that third party, and reserves a 2.5% ORRI in the wellbore of that well.  All of the WI outside that wellbore remains owned by the Seller in the SE/4 SE/4.  As to the wellbore only, the Seller owns no working interest but owns an overriding royalty interest.  The legal description has changed, and the type of ownership has changed.  The WI is “less and except the wellbore” of the third-party well, and the overriding royalty interest is “limited to the wellbore only” of the third-party well.

Tracting

“Tracting”, also sometimes called “entracting” is the process of creating records dividing the surface and/or depths according to uniform ownership, uniform producing status, and uniform terms (expiration dates).  The legal description in the John Doe, Alice Doe and James Doe leases reads:

Tract 1: 40 acres out of John Canton Survey, A-1340, part of Section 16, Block A-42, Ector County, Texas, and
Tract 2: 40 acres out of Charles Winslow Survey, A-520, Section 15, Block A-42, Ector County, Texas, being more fully described as Tracts 1 and 2 of that certain deed dated July 7, 1957 from Samuel Jones, et ux to Clifford Doe, recorded in Vol. 550, Pg. 216, Deed Records of Ector County, Texas.

For each of the leases covering these two tracts, the following “test” is applied, to determine how the lease data record must be constructed to accurately reflect only what the analyst’s employer (working interest owner in whichever lease) owns.  This is necessary for at least  four basic reasons:

1. To insure that all obligations and responsibilities are met to prevent any loss of ownership rights; and
2. To maintain accurate records of the size and value of this oil and gas lease as a company asset; and
3. To allow the company to determine future exploitation possibilities for this asset; and
4. To satisfy all reporting requirements to governmental authorities, such as the SEC if publicly traded.

There are THREE basic criteria for creating separate lease data record tracts out of ONE legal description tract stated in a lease:

1. Uniform Ownership throughout ever acre/partial acre of land area
•Lessor MI same throughout Tract
•WI ownership same throughout Tract

2. Uniform production status:
•Producing
•Non-producing
•HBP

3. Uniform lease term
•Vertical (surface) Pugh
•Horizontal (depth) Pugh
•Farmout Re-Assignment Obligation