Replies to This Discussion

Permalink Reply by Gregg Williams on January 29, 2014 at 10:35

Are you in a large sand unit?

Permalink Reply by Robert B Dunlap on January 29, 2014 at 10:36

Do you have information on the well that is holding the lease?  Serial No.,? Section, Township and Range?  I just did a quick check on Sonris for Enervest Operating in Union Parish and they are operating a lot of wells, over 1000 hits for their operator code.  

Determining which well is holding the lease would be your first step I believe.  Then you could determine production.  

You say you have received payments in the past, so I am assuming that you are in fact a mineral owner; that these were royalty checks.  Was Enervest sending the payments?  The stubs should have the well information.  Let's start there.

Permalink Reply by Jimburgess on January 29, 2014 at 11:25

Robert......Miller-Burgess #1......E1/2,NENW and W1/4NWNE, Sec. 9,T22N,R2E..(30 ac.)              I am thesurface and mineral owner....100 % inherited Miller interest.

                    The last check received was from Enervest which was deposited  directly to

                    my bank acct.....something like $10 for a year.....a few years ago.  They have held

                    this acreage for years with practically no production. 

                     I have heard there are other tracts that have same issue...the Greens, Dugas,

                     and other mineral owners.  This is in the old Marion Shallow gas field that has

                      dwindled to nothing..

                       Any advice or comments appreciated.  Thanks....Jim B.

Permalink Reply by Skip Peel - Mineral Consultant on January 29, 2014 at 11:44

Jim, Axiom is listed as the operator of the wells in Section 9 that have status code 10 (Producing). Several including the one you mention are not producing according to monthly production reports to the state.  Any lease associated with those wells alone has expired quite a while ago.  Axiom does have a couple of wells which are reporting minimal gas production probably related to the annual check for $10.  These wells do not meet the "production in paying quantities" test contained in the state mineral code.  I suggest that you and the other mineral owners so effected get an experienced O&G attorney to look at these wells and send a demand letter to release the lease if they are found to not meet the test.  A well must make a profit in order to maintain the lease rights.  If income is less than the expense to operate, these wells fail the test.

Permalink Reply by HBP on January 29, 2014 at 12:01

"These wells do not meet the production in paying quantities test contained in the state mineral code"  

I am familiar with a few axiom leases and wells up that way that clients of mine get small checks on and agree that the production is minimal, however there is not a set volume under the mineral code that will put it on one side or the other of paying quantities.  I believe there is even a La. case (or two) in my research where the operator was not making a profit but still was able to hold the lease as "paying quantities".  

That being said, I do believe Axiom, Conquest, etc... may be vulnerable to that claim on certain wells/leases, but it can be an intensive inquiry.  Judging from the way these companies have promoted the "upside" potential of the deep assets held in their leases, they are probably are prepared for that inquiry.

Permalink Reply by Skip Peel - Mineral Consultant on January 29, 2014 at 12:18

To expand on part of HBP's reply, all operators of shallow production holding all depth leases understand the potential wind fall related to unconventional reservoirs.  If it turns out that a major or mid-major energy company focused on shale or other deep unconventional targets is interested in their acreage they can assign the deep rights for a nice bonus per acre and a quarter royalty.  If the lease is old enough it probably has a one eighth royalty (12.5%).  When the shallow depth operator assigns they get the bonus and the quarter royalty and then pass along one half the royalty to satisfy the terms of the old lease.  IMO the shallow operator has not done anything to earn the deep rights.  They are unable to explore and produce those deeper intervals.  Not all mineral owners also own the surface, they own a servitude.  Those that own the minerals and surface (in fee) should look into termination of the lease and remediation of the surface.  Those who own a mineral servitude should demand a release of the deep rights.  I would suggest that mineral lessors band together to share the cost and seek experienced legal representation.

Permalink Reply by HBP on January 29, 2014 at 16:54

I agree.  And I think working together would assist all.  However, "banding together" will be a point of contention in litigation if not done properly.  And without banding together it makes it less cost effective for some to address if they have to litigate.

But I am very interested in the issue and the particular area involved.  

Permalink Reply by Robert B Dunlap on January 29, 2014 at 11:56

Here is the well: http://sonlite.dnr.state.la.us/sundown/cart_prod/cart_con_wellinfo2...

If I'm reading the production history correctly, it doesn't appear to have produced anything for a long time.  1 mcf last year wouldn't seem to be "paying quantities".  I don't see that it is a shut in.  

The operator is listed as AXIOM TEP, LLC

I'd make demand on them to release the lease or produce the property.  If they fail to do either, you have additional rights and remedies.

Permalink Reply by HBP on January 29, 2014 at 16:56

The well linked is a good example.  If that is the only well holding the lease.  Many of these leases have multiple wells, some producing, some not, so its a different analysis collectively as to paying quantities.

Good luck.  Be sure to properly document your correspondence with the lessee in case you need it later.

Permalink Reply by Skip Peel - Mineral Consultant on January 29, 2014 at 17:15

Axiom will not rely on the well previously linked.  They will likely make a production in paying quantities defense using these wells.

http://sonlite.dnr.state.la.us/sundown/cart_prod/cart_con_wellinfo2...

Permalink Reply by dbob on January 29, 2014 at 17:49

So, I'm too lazy to do the math, but with that production history, has it likely even ever met payout?

Permalink Reply by Skip Peel - Mineral Consultant on January 30, 2014 at 3:35

The cost to operate is unknown however it would cover all 4 wells listed under the LUW code number.  And for the last reported month the income after royalty burden and taxes would be south of $250.

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