A 4 Acre Mineral Owner Holding up Hilcorp--This is why forced pooling was invented
How would you like to own the lions share of minerals in this unit and have a 4 acre owner stop its' development. Welcome to Pennsylvania.
Jay
NEW BEDFORD, Pa. (AP) — An energy company is dusting off an old, unused state law that can force property owners to accept oil and gas drilling under their land, pitting neighbor against neighbor in a Pennsylvania community and raising the possibility that lawmakers will have to take sides.
Houston-based Hilcorp seeks to use a 1961 Pennsylvania law to drill under the property of four holdout landowners in New Bedford, near the Ohio border an hour north of Pittsburgh. The concept, known as “forced pooling,” means that people who don’t sign leases get bundled in with those who do, to make drilling more efficient and compensate all the landowners.
The stakes are high. Property owners can reap royalties totaling hundreds of thousands or even millions of dollars from drilling in the Utica Shale formation, which lies below the better-known Marcellus Shale.
Suzanne Matteo, one of the four who has refused to sign a lease, said she is furious that the company may be able to drill under her property without her permission.
“It’s un-American,” she said.
On the other side are many neighbors who have signed leases, such as Bruce Clingan, who owns the roughly 200-acre Tanglewood Golf Course with his wife, Jody. They signed a lease with Hilcorp a few years ago and received a signing bonus of more than $500,000, plus 18 percent royalties on future production.
“I don’t understand how people that own 4 acres of ground can hold up such a big thing. I don’t agree with that,” Clingan said.
Hilcorp said that 99 percent of the property owners in the 3,267-acre tract have signed leases, and that drilling would occur a mile or more under the surface of the holdout’s property. Invoking the old law, the company said, would ensure that “all participants, leased or unleased, are compensated for the minerals they own.”
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Replies to This Discussion
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Permalink Reply by 1kw6x71km1v37 on
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A problem is developing with the increasing population density to Louisiana. As land is divided or otherwise disposed of, there are more and more acreages becoming just too small to justify title search and leasing costs. These areas can be skipped over and nobody so affected gets in a well. The state may not like the corresponding inability to collect severance taxes on production, so possibly sometime in the future the law could be changed by the Legislature to mirror Texas law in this regard.
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Permalink Reply by John Matherne on -
They must have an Uncle Bobby!
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Forced pooling in Louisiana is made possible by the police power of the state to collect severance taxes from the sale of hydrocarbons. It is implemented by exercise of the law of co-ownership. Perfect in theory, however, flawed beyond belief in practice for the most part because experienced operators know how to game the system to their advantage.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Game the system or not, it still comes down to economics under LA pooling statutes. Units with unleased acreage beyond what O&G accountants will approve as sufficient ROI do not get drilled even though the open acreage could be force pooled. Merely recovering well costs for unleased acreage doesn't make an operator a return. They break even on their open unit acreage.
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Permalink Reply by Two Dogs, Pirate on
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My experience has been on the leasing end and that many times the prospect never gets drilled. A good example would be the Halcon play in Rapides Parish, the western side was cut out with the dry hole of the Lambright well. Halcon was offering a deal of $500 per acre and 1/4 royalty with all the bells and whistles of a really good lease. Much of this property was swamp and wasn't worth $500 per acre in fee title.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Permalink Reply by Skip Peel - Mineral Consultant on
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No acreage is too small for an operator to make an attempt to lease as demonstrated by Haynesville Shale leasing in highly dense urban Shreveport where the average lot is smaller than a half acre. There can be title related problems that make it more challenging to lease a tract of modest size however the industry will often take "protection leases" from every individual that they can find that has some possibility of owning an interest. Generally speaking operators hate unleased acreage in a unit and will go to great lengths to acquire a lease. Of course they won't persist indefinitely although mineral owners can lease at any time they can come to an agreement to lease even after a well or wells have been completed and turned to sales. Many small interest owners attempted to lease Haynesville Shale acreage after their units were developed and after the crash in NG prices especially those that figured out that their well was unlikely to ever payout and provide them with any revenue. In all the particular situations of which I was aware the operator offered a quarter royalty, standard form lease with no bonus payment but would not negotiate any additional terms.
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Permalink Reply by Max on
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I agree with Skip, some of those holding small acreage are country churches and mom/pop operations that benefit from any extra income provided by owning the minerals. You have more to deal with, but that's part of doing business.
CS, I think history plays a big part on how mineral laws were constructed here in Texas. My belief is that minerals separated from the surface forever, leads to fewer mineral owners. Yes, the wide-open spaces are disappearing, and with that happening, Texas land owners and Texas mineral owners will not be on the same page dealing with their interest.
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Permalink Reply by Two Dogs, Pirate on
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Max the separation of minerals in TX leads to way more mineral owners.
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MAX,
Minerals in TX are regarded as fixed in place and so can be owned separately from the surface.
In Louisiana, minerals are fugacious, or movable. Consequently one does cannot own minerals until they are reduced to possession at the surface. Before that point, they aren't owned by anyone. What you get here instead is the mineral rights, inseparable from the surface estate past ten years without qualifying activity.
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imo, minerals are funny things.
i'm told a good portion of the best eagle ford acreage is found in a part of texas that hadn't historically been regarded as productive. accordingly, there's a whole lot of land down there where the minerals were never severed from the surface. there's many a new stx grillionaire by virtue of that.
as an example, my across the street neighbors needed some handy man work done. they used a guy who'd done such work for her father for decades.
i just happened to get to talking w/him. and he mentioned that he owned some land; i think in jim wells county. note: land in stx ,is pretty hard scrabble. any thing that grows there will stick or scrape you or worse. and they've got plenty of bad actor critters such as mr. rattlesnake. you can't run many cows or goats/sheep there, so, up until this play, the most income folks down there saw off their land was from leasing out hunting rights. they do have beau coup deer and turkey and doves and quail, the latter if there aren't fire ants.
so, i asked him if he'd been leased. yes was his answer. and he volunteered that the operator was planning to drill several wells (they were drilling them 640 at the time. since then spacing's gotten to as little as 50) draining his place. he also told me he was only doing the handyman work that day as a favor to her father.at that point i was thinking: really, you say???
i was nosy and asked him if he knew how any nearby wells had come in? yes, he did. he went on to tell me about a fence-line neighbor. his first check was a little shy of 7 figures.
yes, minerals are funny.
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Permalink Reply by Max on
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Cheap Shot, I reviewed some of the Texas Mineral laws and now I know that Louisiana has a leg up for us simple folk.
This is a good read to give someone a good idea of how complicated Texas minerals can be...it's around sixty pages long, but easy to understand.
http://www.beardenlawfirm.com/Texas Oil and Gas.pd
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John, although I agree I'll allow you the pleasure of convincing the Louisiana members/mineral owners as to "...the bonus's and royalty rates are more in line with true market value...".