Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on June 22, 2016 at 9:01

Yes, things have changed for very compelling reasons.  If other mineral owners within the unit boundary have accepted this offer, and these are the highest prevailing terms, you may have no other choice.  Is it "fair"?  Hard to say.  MS mineral laws don't provide mineral owners many options.

I'm not sure that TMS wells will be economic even at a 85% NRI and $70/barrel crude.  I expect that ECA is making the case to the MS O&G Board that this is what it takes to support development going forward.   And TMS economics are really, really tough for the foreseeable future.  It is likely that ECA has tried to sell their TMS assets and found no takers.  It is entirely possible that this is the new standard for TMS leases.  ECA should know as well or better than any other TMS operator what it takes to make  the play viable.

If you are looking for feedback from other Amite mineral owners/lessors it is better to post in the Amite County Group.  When you do that an email is sent to all the group members alerting them to a new discussion.  That doesn't happen with Main Page discussions.  You just have to be lucky that one or more see your discussion before it rotates off the page.  It's quite likely under the present conditions that TMS members are not following GHS as much as they did in the past when development was moving forward.

http://www.gohaynesvilleshale.com/group/amite-county-ms

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Permalink Reply by Hale Yayuh on June 22, 2016 at 11:17

IMO, that is a ridiculous offer. Encana, themselves, put out some mighty impressive reserve figures in the past. A 20% royalty versus a 15% royalty is not going to kill a prospect. If they claim it is, they shouldn't be drilling in the first place. Also, $75 per acre bonus for 5 yrs is laughable.

Now, could you get screwed? Yep, due to the Mississippi laws. If I were you and if you own more than a few acres, I'd go to Amite county and run the records and figure out who owns minerals in your section and see what they have done. Heck, I'd even contact them to get some support to NOT sign for meager terms. You have been lowballed. I hope nobody signs for that amount. Encana ROUTINELY gave 20% royalty in the past to anyone who could sign their name, you didn't even have to ask for it.

A 15% royalty and a $75/ac bonus in an oil-producing state such as Mississippi is a ripoff. Much less a part of Mississippi where we KNOW oil is to be found. If your minerals were in Georgia, that's another story.

Tell them you know about their reserve projections and ask were they lying to the public (and the Securities and Exchange Commission).

P.S.  You can bet large mineral owners are NOT going to sign for those terms. Best of luck to you!

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Permalink Reply by Recordman on June 22, 2016 at 11:45

I don't know for sure but I doubt any mineral owners have accepted this offer. I sure won't!! As Hale said, this is a laughable offer! They already have the needed 33.3% controlling interest and I think they are just trying to get some of the holdouts for as little as possible. I only have a few acres in this unit and wasn't interested last year in accepting an 18.75% RI so I'm certainly not interested in this. I just find it very interesting that they are sending out these forced integration offers now when I doubt they are going to drill these wells anytime soon. The Mississippi Oil and Gas Board should really look into these kind of things and make some changes to Mississippi law!

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Permalink Reply by Skip Peel - Mineral Consultant on June 22, 2016 at 12:04

What are the terms of the leases for the 33.3%?

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Permalink Reply by Recordman on June 22, 2016 at 12:26

I have no idea Skip. The petition to be brought before the MSOGB which is included with the letter just states this fact. I believe the offer I received last year included this as well (don't have it with me at the moment) which would be terms as least as good as I was offered last year. Is there a way to get this information?

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Permalink Reply by Skip Peel - Mineral Consultant on June 22, 2016 at 12:42

I would think that the MS O&G Board would have some evidence with the application from ECA regarding the required minimum 33.3% of unit acreage.  The Powell 10H unit is 1951 acres, unless the application has been amended, so ECA would need ~650 acres leased at 15% and $75 if they were to force you to accept those terms.  That's my understanding of the rules but if I would suggest that you confirm.  If the O&G Board will not supply the specifics, I would ask for the names of the mineral owners ECA claims are leased at those terms and then use those names to perform a lease search in the public records of Amite County.

You can always simply decline the lease and let the Board decide your terms based upon ECA's application.  The state wants the revenue from production and could very well be susceptible to arguments that lower royalty and bonus are the only means to make the play economic.  MS forced integration rules are decidedly pro-industry. 

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Permalink Reply by William W. Waring III on June 23, 2016 at 4:48

Skip, why would Encana be attempting to secure the entire leasehold in the Powell Unit if they have no intention of drilling anytime time soon? It seems that if they have resorted to forced integration as to the holdouts, they must have some intention of activity in the foreseeable future - what am I missing? We all know the high cost of drilling a TMS well, and with oil only sporadically breaking $50, Encana's new activity seems counter-intuitive, would it be worth it to them to resume activity simply to hold their existing leases? 

I look forward to your insight. 

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Permalink Reply by Paul Butler on June 23, 2016 at 9:22

The link I gave doesn't have the whole statute, i.e. 53-3-7 (2) and the rest of the statute is missing. 

If I was in MS I'd get a copy of all of 53-3-7.

You do not have to accept that lease. 

If you don't and choose to participate--they can hit you with the 250% penalty.

I found this text in a summary of a recent case.

1] Section 53-3-7(2)(a) prescribes three statutory options that operates can offer to nonconsenting owners before petitioning the Board to allow the operator to charge alternative charges:

• (1) a written agreement to lease
• (2) farm out
• (3) participate in the cost and risk of developing and operating the proposed unit well.

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Permalink Reply by Skip Peel - Mineral Consultant on June 23, 2016 at 12:46

William, this is not an isolated instance.  ECA has been filing unit applications with the MS O&G Board for at least the 8 or 9 months that I am aware of without drilling any new wells (the company has re-permitted some wells in their existing units).  I suspect that ECA has been looking for a buyer for their TMS assets and getting unit approvals, especially at reduced net royalty interest (NRI), is part of making the deal look as good as possible.

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Permalink Reply by Barnburner16 on June 30, 2016 at 8:29

unfortunately.....any offer at all isn't laughable if it's the only offer you can get.  

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Permalink Reply by Paul Butler on June 23, 2016 at 8:52

Forced Integration is covered by Miss Code Ann Section 53-3-7.

The text can be found:

http://law.justia.com/codes/mississippi/2013/title-53/chapter-3/in-...

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Permalink Reply by Barnburner16 on June 30, 2016 at 8:32

does the operator retain the NRI from the force integrated minerals prior to Payout? if so, seems advantageous to force integrate interests if the well isn't going to offer a 3x PO.

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