Offset requirements protect Heritage from drainage of its oil and natural gas resources from adjacent lands and the consequent loss of revenue. Offset obligations are triggered by wells producing from lease formations in a spacing unit which (depending on the lease form) either laterally or laterally and diagonally adjoins the leased lands and which is not owned by Heritage or, if owned by Heritage, is not under lease to the Lessee.
Depending on the lease form, offset obligations may require the Lessee to do one of the following:
- Drill an offset well on the leased lands into the same formation from which the drainage is occurring;
- Surrender the lease;
- 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
- Unitize the lands through a production allocation agreement or pooling agreement.
Trespass is any unauthorized activity by the Lessee related to Heritage’s mineral rights. Heritage monitors trespass in all forms and takes enforcement action as appropriate.
Examples of trespass:
- Land – A well drilled on lands where there is no lease;
- Zonal – A well producing from an unleased formation; and
- Substance – Producing an unleased substance (e.g., gas production from an oil lease).