12. Article IV.B.2: Loss by Nonpayment or Erroneous Payment of Amount Due

Article IV.B.2 says that if a party fails to make any required payment under a lease or interest and the lease or interest terminates, the party failing to make the payment has no liability to the other parties and has 90 days to take a new lease. The new lease is:

·??????????Not subject to the right of all parties to participate in a lease renewal under Article VIII.B (see Article VIII.B: Renewal or Extension of Leases).

·?????????Subject to the obligation to pay shut-in royalties and minimum royalties under Article VII.E (see Article VII.E: Rentals, Shut-in Well Payments, and Minimum Royalties).

Exhibit A is revised on an acreage basis, deleting the credit for the lost acreage.

If the failed lease or interest has been producing and the party responsible for the lease has not been reimbursed for their share of payments on the failed interest, the responsible party:

·??????????Can be reimbursed for those costs out of production proceeds (net of operating expense and lease burdens) not already disbursed up to:

o??????????the amount of unrecovered costs; and

o??????????extra amounts paid to other parties because of the failure of the lease or the interest.

·??????????Cannot be reimbursed for dry hole costs or costs attributable to abandoned wells.

·??????????May also be reimbursed out of any payments made by the actual owners of the failed lease or interest if they participate in the contract area or become a party to the JOA.

Under Article IV.B.4, if title has failed, the interest is lost, and another JOA party takes a lease on the lost interest within the 90-day period described above, the leasing JOA party must offer the interest to the party losing the interest at cost and without regard to the right of all parties to participate in the lease renewal reserved in Article VIII.B (see Article IV.B.3: Other Losses and Article IV.B.4: Curing Title).

Article IV.B.2. also says that a failure of title occurs if an interest contributed by a party covers a lesser interest or less lands (including depth limits and surface limitations), unless those limitations are disclosed on Exhibit A (see Article III.C., Subsequently Created Interests).

For a complete discussion of the 2015 JOA form, see Model Form of Onshore Oil & Gas Joint Operating Agreement AAPL 610-2015: Overview by Westlaw's Practical Law, Oil & Gas.