Offset Requirements

Offset requirements protect Heritage from drainage and loss of revenue. Offset obligations apply to any well drilled in a spacing unit which either laterally, or laterally and diagonally (depending on the lease form), adjoins the leased lands and which is not owned by the Lessor, or, if owned by the Lessor, is not under lease to the Lessee.

Depending on the lease form, offset obligations may require the Lessee to do one of the following:

a)      Drill an offset well on the leased lands into the same formation from which the drainage is occurring;

b)      Surrender the lease;

c)      Pay compensatory royalties equal to the royalty that would be payable to the Lessor as though production had occurred from a well on the leased lands; or

d)      Unitize the lands through a production allocation agreement or pooling agreement.