What’s a Few Thousand Feet Between Friends: Calling Depth Severances in Permian Basin Oil and Gas Leases

Provisions in many modern oil and gas leases which effectuate depth severances (so-called “Pugh” clauses, often tied into retained acreage and/or continuous development provisions) can create great opportunity and value both for mineral owners and even potential subsequent lessees. Accurately ascertaining the demarcation point subsurface for such depth severances is critical – it could make the difference between the subsequent lessee paying for worthless subsurface depths or capturing prolific pay zones. Many of these depth severances are tied to a multitude of common reference points, including the depth of the deepest producing perforation in the wellbore, the base of the producing formation, and the total depth drilled in the well. 

Something I’ve seen a number of times in the last several years are determinations in title reports and title opinions that call the total depth drilled in a well vis-a-vis the Texas Railroad Commission’s “total depth” reference in its online database and record keeping system. This sounds pretty reasonable – after all, the plain meaning of total depth would seem to be pretty straightforward and clear on its face. Below is a screenshot of how this information would typically appear:

Easy enough, right? Well not so fast. If one were to examine the directional drilling report associated with the well, you’d see that the Railroad Commission’s total depth and the drilling report’s total vertical depth (“TVD”) of the well do not correlate once the well begins to deviate into a horizontal orientation, despite those numbers being nearly identical before the directional drilling commences. Oftentimes the two numbers are thousands of feet apart by the end – the length is continuously increasing on the X axis while on the Y axis it starts to taper off. Below are two excerpts of a drilling report associated with the well whose Railroad Commission total depth was previously set forth above – the first being at the beginning of the directional drilling, and the second at the conclusion of the directional drilling: 

On this well, the greatest TVD was around 10,685’ subsurface (which occurred in between the presented data sets), and this is obviously not as deep as the 13,500’ “total depth” stated on the Railroad Commission data set. Interestingly, if one were to examine the measured depth on the drilling report (“MD”), that more accurately ties back to the Railroad Commission “total depth.” It seems that “total depth” and TVD, when thinking back to an age of vertical wells, were one and the same since both were only increasing on the Y axis; the total depth drilled generally necessarily equaled the length of the wellbore. However, now that the wellbore’s trajectory is intentionally deviated from a vertical plane to a horizontal plane, the total depth/MD and the TVD of the well are consequently going to meaningfully deviate. 

With these details laid out the natural response would probably be “well of course”—particularly from any engineers in the audience—but for landmen and title attorneys blind to this nuance and who don’t spend all day in drilling reports, one can see where it would get past them sight unseen. So when making depth severance calls (whether in-house or as a contract land broker / title attorney), be sure to spend a few minutes perusing well drilling reports to get a more accurate understanding of where the depth severance may be since you may unwittingly and incorrectly declare valuable open depths as being subject to an existing oil and gas lease.

This article is also available at my LinkedIn page.