Does anyone know for sure what happens if we do not sign a lease? I'm told we would get placed into forced pooling (consent or non-consent). Some say forced pooling could equal 100% royalties? Some say they can give you as little as 3/16 royalty? I've heard you can wait forever to receive your royalty money and there are costs and legal issues you could be liable for? What's the real deal with forced pooling?

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J Stewart, there are no "royalties" if you do not sign a lease. There is no such thing as 100% royalties.

If your acreage is force pooled in a unit you become a working interest owner subject to an operating agreement. If the unit operator proposes drilling a well in the unit, you would have an opportunity to participate but would have to pay your share of the well cost. It is likely you would not want to participate and therefor would "non-consent" the well. The operator will keep your share of any revenue from the well until he recoups the cost of the well and operating expenses (ie reaches "pay-out").

After pay-out, you would receive your share of revenue from the well less the operating cost.

Example: You have 32 acres in a 640 acre unit (section). You would have a 5% working interest in the well. If a well produces $150,000 of revenue in a month but costs $30,000 to operate, after pay-out you would receive $6,000. Before the well reaches pay-out you would receive $0.
Question for Les....If someone wanted to "participate" what would the cost be? What would you guess the per acre cost would be?
Johnson, the capital cost for the 1st well would be ~ $9,400 per acre. One section takes eight wells to develop. Assuming some reduction in drilling cost but adding surface facilities I estimated capital cost of ~ $78,000 per acre for the full development. You will also need to cover the operating cost also which may be about $2 per Mcf of gas.
I have been going off the assumption that cost per acre would be about $10,000 per well so we are close on that. My question is that if they are going to have multiple horizontal wells at one site, would the overall cost per well be lower?
Mit, yes and I reduced my average well cost to $5 million based on the efficiencies of drilling multiple wells. My concern is that metal prices are going to continue to increase which could make this number too low.
Thanks very much for the info Les.

After hearing your numbers it's sounding like a much better idea to be a participant. I didn't realize the cost would be so low.

This will give people great power in negotiations.
You dont dont want Force pooled! And there is no such thing as 100% royalties...that would be like paying your nabor to wash HIS car. Does that make Since?
There are several discusions on this matter go check out the discusion I started on 25% VS 100% or do a search by entering in forced pool.
So what is the choice, accept a really bad deal like the Dogwood lease proposal, or be force pooled? Is forced pooling such a terrible thing in view of the small amount of land involved and the low-ball (in my opinion) proposal reflected in the Dogwood lease, especially in view of the fact that this scenario is still developing?

Also, when a small lot owner is negotiating with a landman, does it really have anything to do with some characteristic of the drilling itself as to how little amount of land is in play, especially when it's in the middle of a lot of other small property owners who have already signed leases? I'm guessing everything is up for negotation, it's just a matter of whoever blinks first, is it not? In other words, does one really have anything to do with the other, other than the landman saying there's a relationship?

Also, what wording would you guys suggest be added to a lease to protect a small land owner from no revenue coming in due to no drilling on the tract in which we're located, should we enter into a lease? What is a reasonable timeframe in which to expect drilling to start?

For the small amount of land we own, we think it's more important at this point not to commit to a bad lease that obligates us for several years than it is to be force pooled. We still think it's far too premature to commit ourselves at this point in time to bad lease agreement, out of fear of being force pooled. I too would like to hear from other small property owners who were force pooled, to see if forced pooling worked for or against them.
It would be nice to hear from someone in the BS who did not sign a lease.
Johnson, just recognize the Barnett Shale is highly variable in quality. The wells in the core region are generally good while some of the wells drilled in the outer counties may never reach pay-out. This was a major factor in lease terms.
Would you guess the Haynesville shale will have this high variable in quality as well...or not?


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