Force pooling?

I have just a regular lot in the Broadmoor area. What happens if I chose not to take a bonus and sign a lease and the section is eventually drilled?

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Permalink Reply by Randy on July 5, 2008 at 17:00
I believe at the point of forced pooling, you only have two options left. And that is consent or non-consent. Of course before forced pooling you will be informed that you have 30 days to lease or something to that effect (maybe 90)?

Randy
Permalink Reply by Kassi on July 3, 2008 at 22:05
Randy, I beg to differ. For example. If I have 3.5 acres in a 640 acre pool and the well is producing 5 mcf/day at an average wellhead gas price of $9.00 and my royalty is a 25% no cost royalty my annual royalty would be $22,456.05. If on the other hand I am an unsigned lease holder in the same situation my annual royalty is $89,824.22. Even If annual costs are high and my share comes to $25,000.00 ($50,000.00 with the 200% penalty for being an unsigned lease holder effective Aug 08) my payment would be reduced to $39,824.22 ($17,368.17 MORE than at a 25% royalty). That means the O&G Company would be leaving $17,368.17 annually on the table if they did not lease my minerals. I seriously doubt an O&G Company would refuse to lease.
I do agree with you that the land owner in this situation would be letting go of a lot of money if he/she chose to lease.
Permalink Reply by Randy on July 4, 2008 at 2:44
Kassi, that is an interesting question and I had to put some thought into it. I've never personally received royalty checks, so maybe someone who has (in a non-consent relationship) can help. As I personally understand it (and granted I'm not completely familiar with Louisiana non-consent laws, as they are different from other states), you are also subject to any and all costs that the operator chooses to deduct. Which can be substantial if they expect you to fulfill your proportional share of the daily burden of well operations.

The jury is still out on if you are paid royalties when every individual well reaches profitability, or if it when the section has reached profitability. The burden of that is that, if it by section, then you are back at zero every time they start construction on a new well and start tacking on more charges to your account. In this case you could be waiting years and years while your neighbors are getting royalties off the money portion of wells.

YMMV, just my two cents.

Randy
Permalink Reply by DrWAVeSport Cd1 on July 4, 2008 at 4:00
Please take off the 200% penalty thing. It does not apply in the case.

Read discussion titled: Legislature Passes New Penalties - But They Are Not Applicable to Owners Who Don't Lease At All.

Thanks,

DrWAVeSport 7/4/2008
Permalink Reply by DrWAVeSport Cd1 on July 4, 2008 at 4:24
Thanks Kassi...

I had earlier "derided" Mr. Burns (Rep. from Haughton, La) for this bill. I had to retract my statements as I was not understanding that this has nothing to do with an unsigned landowner...only companies who are going to reap the benefit of a well they did not drill...where more than one company has to work with another to get the job done, thus incurring costs that have to be paid...and one company cannot "hold out" payments. Then they will be fined.
It essentially helps the drilling get done...and more of it.
Permalink Reply by Kassi on July 4, 2008 at 4:55
Revised Statued 30 section 10 (b)(i) as amended reads:
(b)(i) Should a notified owner elect not to participate in the risk and expense of the unit well or should such owner elect to participate in the risk and expense of the unit well and then fail to pay his share of such expenses within sixty days of receipt of detailed invoices, the owner drilling same shall, in addition to any other available legal remedies to enforce collection of such expenses, be entitled to own and recover out of production from such unit well allocable to the tract belonging to the nonparticipating owner such tract's allocated share of the actual reasonable expenditures incurred in drilling, testing, completing, equipping, and operating the unit well, including a charge for supervision, together with a risk charge, which risk charge shall be two hundred percent of such tract's allocated share of the cost of drilling, testing, and completing the unit well.

Section 10(e) goes on to say:
e) The provisions of Paragraph 2(b) above with respect to the risk charge shall not apply to any unleased interest not subject to an oil, gas, and mineral lease. Notwithstanding the provisions of Paragraph 2(b) the royalty owner and overriding royalty owner shall receive that portion of production due to them under the terms of the contract creating the royalty.

Many land men are telling land owners that they will face a 200% penalty if they do not sign a lease as a scare tactic. Even when told it does not apply to the unsigned lease holder one told me it does in certain circumstances. The typical land owner may not have the ability to dig through the regs and find out the truth of that matter.
I use the risk penalty in my example in order to illustrate that even with the penalty the land owner receives more money as an unsigned lease holder. Without the risk penalty, of course, the unsigned lease holder fairs even better on the royalty side of things. I opologize for any confusion my illustration caused however, I wanted to take the wind out of the sails of that scare tactic regardless of the circumstances.
Permalink Reply by shelby on July 5, 2008 at 10:52
Kassi,
Another point, another question; regarding a persons mineral right interests, or, net mineral position in a pooled unit. What would you perceive a persons rights would be, if they had been previously pooled into percentage position of a producing unit. For example, if I owned 5 net mineral acre interest, and was pooled, and received royalty payments from an operator, who negotiated leases with predominately larger land holders, let say 50 years ago, what can you do? Can you lease your interests to another O&G company to explore Haynesville Shale, or, is the person bound to the terms, of an operator who drilled a 300 ft deep well manually back in "the day". Your thoughts are always appreciated.
Shelby
Permalink Reply by Les Bamburg on July 5, 2008 at 12:31
Shelby, sorry I know you addressed this question to Kassi. Look at the unit that included the force pooling. For example, if your 5 acres were force pooled in a Hosston Unit this would include only that formation and would not necessarily cover the Haynesville Shale. The acreage could be leased and/or included in an HS unit. This was the reason the CHK/PXP transaction included only the deep rights (ie primarily Haynesville Shale).
Permalink Reply by Snake Stewart on July 5, 2008 at 12:43
Hello Les B,

I am sometimes slow to gather , quick to slather .
Is what you are saying , Because he was forced pooled he wouldn't be held by production ?
Permalink Reply by insomniacnla on July 5, 2008 at 13:02
When a unit if formed, it is only based on a particular depth. Like my unit is unitized for the Glen Rose depth and also the Cotton Valley. Each depth that is produced has to be unitized for that particular depth. The section next to me was also unitized for the Hosston depth but my section was not.
Permalink Reply by Snake Stewart on July 5, 2008 at 13:38
If your lease doesn't stipulate a depth clause then you are owned at every depth , right ? My bosses old leases said something like "from surface to core". I think it means throughout entire everything , core of the earth .That case wouldn't matter with unitizing would it ? Please give me something back on this as quite a few in my area are faced with some of this. Thanks a bunch !
Permalink Reply by insomniacnla on July 5, 2008 at 13:48
I was just commenting on the force pooling. As I understand it, If you are force pooled, it only applies to a particular depth. If you did not sign a lease, and your section was unitized for a Glen Rose well, you would only be force pooled in the Glen Rose. You would still be free to negotiate a Haynesville depth, a Cotton Valley and so forth.

I think if your lease did not have a depth restriction, then the lease covers all depths.

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