Replies to This Discussion

Permalink Reply by Two Dogs, Pirate on September 23, 2013 at 14:05

Am I correct with your statement that your property is in a unit but the unit just stops North of the property? How can this be? I may have read this post wrong but need clarification. 

Permalink Reply by Bernell McGehee on September 23, 2013 at 15:41

Okay...it is NOT in the unit.

Well, then, you're just like anyone else who hasn't leased, then.

Lease it.

I'd guess it may be worth a little more since it is close to a producer, but you aren't likely to get more from Goodrich or EnCana.

Personally, I'd take it to an attorney who deals with these companies on a regular basis.

Permalink Reply by Rusty McClendon on September 23, 2013 at 14:26

The acreage is not currently in a unit. It joins the Smith unit. Sorry about the confusion.

Permalink Reply by Rusty McClendon on September 24, 2013 at 1:48

Thanks Bernell. But just say I don't lease the 17 acres and Goodrich decides they want to drill south from the Smith well which would then include the 17 acres in the new unit. What happens to the royalties on the 17 acres in the new southward unit if it comes into production. How does NOT leaseing affect drilling/payments? 

Permalink Reply by onesock73 on September 24, 2013 at 8:03

 How does NOT leaseing affect drilling/payments? 

You get 100% of royalties but only after well costs are paid. Which could take some time in certain cases.

Permalink Reply by Bernell McGehee on September 24, 2013 at 8:38

I believe you would get 3/16ths royalty, but, I'm not sure.

 

Most leases are carrying a 20% royalty.

 

Now, you could always pay your way down on the 17 acres...I would estimate a cost of between $250,000 and $300,000...

 

Again, best bet is an attorney who deals with these companies to explain the options available to you in your unique situation.

Permalink Reply by Steve on September 24, 2013 at 8:46

Aren't there some stiff $ penalties (like 400%) imposed on top of the well costs payout, as well as lots of ongoing maintenance, transportation costs and countless other deductions from royalty payments before unleased landowners get a dime?

Permalink Reply by Andrew on September 24, 2013 at 9:14

Rusty,

If you do not lease and your minerals are unitized, it will not cost you anything out of pocket, but your right to production from that well will be reduced by costs and fees. Basically, the unit operator will pay your share of the well costs, and if the well produces, they may recover those costs from your share of well production.

In addition to recovering the costs they paid for you, they get to withhold from your revenue an additional "risk fee" equal to 150% of the well costs (not including surface equipment or monthly operating expense). You do not get 100% of your share of revenue after well costs are recovered - this is only the case for unleased mineral owners in Louisiana, not Mississippi.

Once the operator has withheld your share of the costs plus the risk fee, you will receive 100% of your share of the well's net revenue each month.

Financially, this is usually a terrible option for the mineral owner, so I would consider a good faith lease offer with an open mind if I was already unitized.

Permalink Reply by Bernell McGehee on September 24, 2013 at 9:28

Rusty,

Andrew has explained the general rules very well.

The essence of the situation, in my opinion, is that NOT LEASING IS DUMB, in most cases.

Let me also say your situation is not unique. 

In fact, I am aware of folks in permitted units that were not (and may still not be) leased.  In all cases where these folks have come to me for advice, I have encouraged  them to see an attorney and, usually, get leased. 

There are too many ways to get messed up...use an attorney.

Permalink Reply by Steve on September 24, 2013 at 9:33

On top of that cost factor to overcome, you will probably have to hire an agent to watch them every minute to be sure they don't rip you a new one every month on royalty deductions. Operators don't like paying royalties to unleased landowners and you will get no sympathy or cooperation from them. IMO

Considering in all likelihood these wells will only produce a substantial amount of oil for about 5 years, you should not anticipate reaping a windfall on 17 acres after you finally are in to the money. IMO. Even the older Anderson wells are both already down to less than 200 boepd after just 1.5 years. Shale formations are an empty bucket after just a few years with decline rates at +85% in year one.

Permalink Reply by Steve on September 24, 2013 at 8:39

Huff well at 11k ft. - has been slow going but pace is picking up. Should be finished drilling within 21/2 weeks. I wouldn't expect any well results until late Oct. or early Nov.

Foster Creek still fishing for 1st of 3 tools. Some progress has been made, but very slow going so far. Everyone remains optimistic,at least for now, that this well will be able to be completed and if so, will be a very good well.

Permalink Reply by Bernell McGehee on September 24, 2013 at 8:41

Fingers crossed on Foster Creek...it will be a real damper to the TMS if this well is lost, in my opinion.

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