Replies to This Discussion

Permalink Reply by Spring Branch,mineral owner on October 6, 2008 at 17:56

I understand the rational of adding the partial section up against the state line to the section to the east to form a larger than 640 acre unit.... what else would you do with the 280 acres in the partial section? That is what Chesapeake is proposing and I understand the rational behind it. What I don't understand is the rational in Encore's formation of the six units in 15/16 which units contain portions of four different sections totaling 720 acres. For example HA RA SU I contains acreage from the SE portion of Section 6, The NE portion of Section 7 (both of which are up against the state line) and also the southern portion of Section 5 and the northern portion of Section 8. Please explain to me why it is necessary or desirable to form these units in this manner. There is clearly some advantage for Encore to put portions of four different sections into a unit or they wouldn't do it. In this one case where the land involved is up against the state line, the 920 acre units containing only two sections like Chesapeake proposes makes more sense to me. It is just much easier to understand .

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Permalink Reply by Snake Stewart on October 7, 2008 at 0:11

Good question Spring Branch.Could it be that the partials in each section are under lease or they have a bigger portion leased in those areas? I have been told by several individuals that some of the leases they have seen are of the 1920 acre variety.Has the Dept of Conservation already predetermined that these areas can be properly drained as a unit ? Thanks

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Permalink Reply by Bobi Carr ("parker") on October 7, 2008 at 2:38

de nada or Jim,

As to Snakes question about 1920 units, isn't it possible for Chesapeake to form a voluntary unit of this size, if they have the acreage for the 1920 leased?

Do I understand correctly that a voluntary unit does not require
DOC approval?

Thanks

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Permalink Reply by Two Dogs, Pirate on October 7, 2008 at 2:47

Voluntary units can be created by agreement of all mineral, royalty, overriding royalty and working interest owners. So long as all parties agree, the unit can be made any size or shape, participation percentages can be established in any manner, and the unit can be given any other legal consequences the parties desire.

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Permalink Reply by Bobi Carr ("parker") on October 7, 2008 at 5:59

Two Dogs,

Since many mineral owners agreed to 1920 units, wouldn't it now only need to be agreed by the lessee, since the lessor has already agreed?

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Permalink Reply by Two Dogs, Pirate on October 7, 2008 at 8:07

It would depend on the language in the lease form. The Chesapeake lease forms that are of record that I have read state that the well must be a horizontal to create a 1920 acre unit. Their definition of a horizontal is; The term "horizontal completion" means an oil or gas well in which the horizontal component of the gross completion interval in the reservoir exceeds the vertical component thereof".

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Permalink Reply by mary on October 14, 2008 at 7:17

It wouldn't make sense to you if you were that 'other' property added to a smaller unit to make one 920 acre unit. Think about it. If you are not the problem, why would you want the honor of being the solution if it will cost you in the end?

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Permalink Reply by mary on October 14, 2008 at 7:12

If this move impacts future leasing or potential profit, and it will, this is devious and misleading at a minimum.

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Permalink Reply by mary on October 14, 2008 at 7:10

The problem with your reasoning is that we are not just talking about the impact to properties that are directly on the state line. We are talking about the properties that will be impacted by this decision that ARE a 'standard' size, not on the state line and not part of the problem.

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Permalink Reply by CaddoKid on October 6, 2008 at 10:46

To all participating in this thread:

First, I'm sorry for the delay in responding. I didn't mean to be a non-participant in a dissucussion I started... but I'm just so "chronologically challenged" with the 8-5 grind lately.
Secondly, I appreciate your interest and time, and your knowledge and insight; it's clear you guys have a grip on this stuff. Further, I should have been more specific in my original post. Jay and others who've speculated that these are "border" sections are virtually correct... actually these units being up-sized are sections immediately east of and expanding to include the partial sections on the Texas border. My small tract is in T15N, R16W, Sec. 5, in HA RA SU H, originally proposed as 720, now proposed for 955.

Out of the blue, my atty. called this morning, and here's his take: There is precedent for this in border-area units in leasing activity in different formations. In the short-term it's not appealing to landowners since it reduces their percentage. In fact, it provides the small player O&G (like Encore) an opportunity to drill a verticle well, bring in "producing quantities" and while being HBP, buy time to raise capital to drill horizontally or sell to a big player. In the long term, there is potential upside for the landowner in that more wells may be drilled by the unit operator if nearby wells, economics, etc., dictate. He suggested I could "protest", but it might not do much good.

Now I've likely over-simplified his comments, but that is the gist of it.

I can upload the amended application by Strain, Dennis, & Bates, L.L.P., if anyone would like to see it.

Thanks so much, again, for your credible responses.

CaddoKid

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Permalink Reply by Grillin' - MmmMmm on October 7, 2008 at 2:35

Good questions. However, none of the units being put in place have much "rational basis in geology". These 640-acre units are not technically devised; they are administratively derived by the commission, unrelated to drainage radius or geological fact/fiction.

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Permalink Reply by Lee on October 7, 2008 at 2:50

Encore acquired a large portion of at least one of the 720 acre units from Greystone in Spring '08. Much of this acreage is HBP from recent (3 year) leases and some of the wells, drilled by Greystone (and hurriedly completed this spring before the 3 year leases ran out), are barely producing but it's enough to hold the leases. Call me crazy but my point is that the newer large units (920+ acres) are all about holding as much acreage as possible. The math indicates that utilizing the large units allows Encore to have approximately 1400 additional acres (2 640 sections+).

Also the rumor is that Encore is a holding company for CHK. Notice I said RUMOR-I'm not trying to start one if it isn't true. Anyone know for sure?

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