Replies to This Discussion

Permalink Reply by Dion Warr, CPL on January 20, 2009 at 10:30

Kcripper:

I have read your post a couple of times now; I am having a hard time following your line of thought.

With all due respect, what are you talking about?

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Permalink Reply by Love Horizontals on January 20, 2009 at 12:38

The bottomline, is it is a general misconception that the interest of the oil company in maximizing well spacing and drilling out a unit for maximum production of the natural resources is always aligned with the interest of royalty owner. There are mathmatical scenarios where saving on cost (by combining 2 units and drilling fewer wells on the 2 units( yeilds a higher return to the oil company than maximixing the gross production.

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Permalink Reply by Dion Warr, CPL on January 21, 2009 at 13:27

O&G companies will generally tend to move in ways and methods that maximize their profits. OK, I got all of that, but to combine the units, you would have to have permission from LOC to do that first. CHK does not have that here, and does not appear to have applied for it.

If one wished to combine the units, IMO it doesn't make sense to place the well as close to the edge of the adjacent section as the levee board will probably allow so that your lateral covers a minimum of the section that you would wish to combine. I don't think that LOC would variegate from their standard unit spacing (± 640 ac.) to drill an extra couple hundred feet, as their general course in granting larger-than-average spacing units requires (1) the lateral to cover most of the dimension in which the unit is extended, and/or (2) geological evidence supports that drainage from a single well (or any number of permitted alternates) encompasses a larger area (neither of which is supported here).

On a side note: the Austin Chalk units referred to elsewhere in this thread were generally dual lateral wells, with the updip and downdip laterals being drilled northerly and southerly to within a tight tolerance of the unit boundary (usually as a little as 50' from the unit boundary). The pooled units were sized east-west based upon the natural fracturing of the rather brittle formation, which fractures lines generally ran east-west. Of course, the HS formation is much more impervious than the Austin Chalk, and the natural fractures present in the shale do not contribute greatly to the recoverable resources compared to the multistage fracturing already done.

Next is a reference to a lease provision that does not allow the royalty owner to be pooled without his joinder. That only applies to non-unitized pooled lease acreage in LA, not to acreage that has been force-pooled by the LOC. If the Commissioner orders the force-pooling under 30:9(c), this trumps any contravening provision in the lease(s) that have been force-pooled, in favor of the public policy of the state.

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Permalink Reply by Dion Warr, CPL on January 22, 2009 at 2:43

KB:

I know there are reasons to be cynical, but with rare exception, unitization is not done to break the pooling provisions of the lease. It was in the public interest to keep every oil and gas field in the state from being overrun with wellbores while companies drilled willy-nilly on a lease or pooled-lease basis at the time of creation of the LOC.

In many cases, dissident O&G companies seeking to protect their own leaseholds from drainage or dilution by rivals request public hearings and rulings for unitization. I know it may seem that way at times, but the LOC is not always used by O&G as a fulcrum against which to leverage the l/o. IMO, the LA statutes provide more protections against such leverage than most any other state.

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Permalink Reply by Dion Warr, CPL on January 22, 2009 at 3:41

KB:

Most of the printed forms of lease currently in use, when speaking as to pooling, specifically acknowledge the ability and/or defer to the LOC (governmental or regulating body) to change or modify the pooling of leases in the formation of units, FYI.

To what unit order are you referring??? I evidently have not seen the order which 'injects itself' into leasing issues.

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Permalink Reply by Dion Warr, CPL on January 22, 2009 at 17:51

We can't go on now, KB, with suspicious minds...

Permalink Reply by James CD1 on January 23, 2009 at 9:35

KB or anyone-please give me an explnation of what a voluntary unit
is and how that differs from a regular unit.

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Permalink Reply by Dion Warr, CPL on January 22, 2009 at 3:32

Graysands:

More or less agreeing with your sentiments. I've never been able fully comprehend why the unitizations in N LA are done as 640-acre geographic units if the SOP going in is that O&G is going to be permitted umpteen alternate wells per section. (Some of this I'm sure is because I am on the south side of Alexandria, where one generally finds one well per unit formed under 30:9(c)). A geologist that I have spoken to did remind me that HOSS/CV/LCV wells will in fact drain from a 640-acre section (or greater) even without an additional well being drilled, and that the current unit-well, alternate-well permitting scheme in place is to allow for a more full, economic depletion of the reservoir while allowing all owners within the section to benefit from a well drilled anywhere within the section.

Those points aside, I don't believe that O&G (going forward) is going to be able to make successful cases to the LOC to approve a unit of greater than 640 acres in the HA (or the redefined CV/LCV, or JUR) where vertical wells are going to be permitted as the rule, unless they is some other compelling reason to do so besides "Company X just wants to". In special circumstances, like units approaching the state line (e.g., Greenwood-Wascom), or where units approach areas or features where one is not going to be able to secure permits any closer (e.g., unitization near Toledo Bend), it has occurred and will occur. Otherwise, I think you're looking at having to drill a lateral of sufficient length and coverage so as to justify the inclusion of additional acreage (so to obtain approval on a 960-acre unit in 'open field', one would have to drill a perforated lateral effectively over approximately 7000' across its longest dimension).

Certainly LOC does whatever it feels prudent or necessary, however.

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Permalink Reply by Snake Stewart on January 22, 2009 at 12:51

Great discussion guys & gals. If the lease signed by l/o was for 1920 acres(early CHPK forms), would it still have to go before LOC or would it fall under voluntary unitization ?

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Permalink Reply by Dion Warr, CPL on January 22, 2009 at 17:55

Snake:

I would have to look at the old CHK Austin Chalk era forms again (COI LA '96 and the like), but I believe you are correct (up to 1920, some I think went up to 2080) as long as the wells and completions are horizontal, and LOC doesn't set the units.

Let me go back and look tomorrow (I should still have one of those old unit filesets from UPR days that would have some of those CHK leases in them. I'll do some reading...

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Permalink Reply by Dion Warr, CPL on January 23, 2009 at 6:54

Snake:

Reading an older CHK lease form from the mid-nineties, under the standard provision governing the pooling of leases (Article 7), they would have the right to pool 40 acres on oil (incl. casinghead gas), 640 acres on gas (incl. condensate), and up to 1920 ac. without Lessor's joinder.

However, they are allowed a ±10% tolerance for spacing purposes. Also, should the LOC ('rules and regulations of the State or Federal Commission, Agency, or regulatory body') prescribe a unit of such shape as and/or in excess of the acreage contemplated in the lease, then CHK would have the authority to pool your lease with other acreage up to the acreage of the area prescribed for said unit.

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Permalink Reply by Snake Stewart on January 23, 2009 at 16:21

Thanks Dion.
Doesnt seem to be the issue on this well but certainly could become an issue at a later date if I am understanding the whole voluntary unit agreement on CHPK leases.

P.S. By the way, when I refered to earlier lease forms, I was talking about within this play in the last year.You made reference to the '90's & the Austin Chalk.I just wanted to clarify. Thanks again.

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