Replies to This Discussion

Permalink Reply by J.R. Ewing on July 15, 2008 at 2:57

I have heard 50 percent,but depending on the company they may want more.But 50 percent by law is what I heard.

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Permalink Reply by TOM CAT on July 15, 2008 at 3:11

Wells are drilled on Units (640 acres will probably be the standard for the Haynesville as the Cotton Valley is already drilled on 640 acre units). Each new well is then an "alternate unit well". Inside these units the mineral owners will be approached for leases, and if certain people refuse to lease they run the risk of being "force pooled" by these big companies. It has happened many times in the Barnett and some of these hotter plays elsewhere. The company doing the drilling will be able to begin drilling a well in a unit once they have over 50% of the unit leased. If certain people are holding out and are unleased when the drilling begins in that unit they will recieve an "AFE", or Authorization for Expenditure". When this arrives, the party will have a short time period to pay their share of the well costs or they will be penalized and will receive nothing until the well costs have been recouped by the drilling company. Many people think they will simply wait this out and start getting a check when the first well pays out, but that will not happen because the drilling company will begin drilling a new well prior to the first well paying out. This will continue, and the drilling company will continue to drill wells, as some of these plays may take years to fully drill and recoup their initial investments. These units will payout on a unit basis, so until the entire unit reaches payout the holdouts probably will not receive any payments. A lot of local attorneys aren't knowledgeable about this, and people are getting bad advice to hold out. Holding out is only possible if you have a large enough acreage block that you form the majority of a unit. Chief, Devon, and others were notorious for doing this in the Barnett

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Permalink Reply by Les Bamburg on July 15, 2008 at 3:27

Chris, you should not use the term "penalized" since there is no penalty for "carried" working interest owners. It is not clear pay-out occurs on a unit basis since this is not stated in Louisiana regulations. It is very possible that pay-out occurs on a well basis so as each well reaches pay-out the carried owner would begin receiving revenue less expenses.

One point of note is the operator may not be obligated to market the carried owners share of gas production. This would mean the carried owner is not receiving any revenue and getting billed for expenses.

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Permalink Reply by PL on July 15, 2008 at 3:42

You're getting "penalized" for not leasing and getting paid right away like the other lessors. If you had gone ahead and leased you would not have to wait for pay-out, you would start getting paid right away(as soon as the well is drilled, producing and gone into sales).

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Permalink Reply by Les Bamburg on July 15, 2008 at 4:01

PL, you should avoid this term because non-consent parties that are not primary mineral interest owners are subjected to a non-consent penalty or risk charge of an additional 100% of the well cost (soon to be 200%). In other words the well has to pay-out two times (soon to be three times) before receiving revenue. We have had a lot of confusion with people stating this risk charge applied to non-leased mineral owners, which it doesn't.

Being force pooled is not a penalty, just a business decision by the mineral owner and operating company.

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Permalink Reply by Randy on July 15, 2008 at 14:27

Les, as I understand it, that doesn't apply to residential interests. Only other O&G companies holding leases in said area.

Correct me if I am wrong.

Randy

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Permalink Reply by Les Bamburg on July 15, 2008 at 15:53

Randy, you are correct. The risk charge (penalty) does not apply to any unleased mineral interest.

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Permalink Reply by Mark Gray on July 15, 2008 at 4:04

So according to your last paragraph the O&G company is going to take minerals from under my land and then charge ME for them? I just don't see that happening in the USA.

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Permalink Reply by Les Bamburg on July 15, 2008 at 16:43

The conservatory unit authorizes the production and recovery of any oil and gas contained within the unitized area and formation. I am reversing course on my previous statement regarding operator's obligation to market. I reread the Louisiana regulation and found the following provision:

"(3) If there is included in any unit created by the commissioner of conservation one or more unleased interests for which the party or parties entitled to market production therefrom have not made arrangements to separately dispose of the share of such production attributable to such tract, and the unit operator proceeds with the sale of unit production, then the unit operator shall pay to such party or parties such tract's pro rata share of the proceeds of the sale of production within one hundred eighty days of such sale."

This would seem to indicate the operator does have an obligation to market any carried working interest owners share of production.

Just understand an unleased party is a working interest owner and that includes a lot of responsibility. This is the difference between a royalty owner and a carried working interest owner.

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Permalink Reply by Foxiecajun on July 15, 2008 at 3:48

I am a landman/woman and I will try to explain what I am doing. My company leased a 300+ in a section. The section is under shallow production. A 640a unit. With about 5 producing wells in the unit. I then have to pull all the leases in the section. There is a 80 a tract that is open to be leased but we can not deal with them. The rest of the section is held by production since the 70's. Then have to run out all of the assignments that have been done from the other companys to the present operator. Then my company will deal with them and the 80 acre tract may lease between now and drilling with someone, then we will deal with them but drilling will begin in about Dec no matter what. At that point they would be force pooled. The deal with the other companies are to key. P S I dont lease. Just run title ect.

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Permalink Reply by Les Bamburg on July 15, 2008 at 4:07

Raymond, I have not located any Louisiana regulation that sets a minimum for this type of unit but the Commissioner probably would not approve a unit with less than 50% of the unit leased. The 75% value applies to a units created under Section 5C of RS 30 which covers pressure units with pressure maintenance operations.

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Permalink Reply by Randy on July 15, 2008 at 14:29

You are required to have a majority.

It is not financially feasible for the operator normally with 51%....however I could see this tactic being used once or twice here just to rile people up.

Like someone else said, it HAS been done before, just to get people in line.

Randy

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