Aethon Energy-Production Sharing Agreements and Longer Wells

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I am familiar w Aethon -

They are not BP or XTO (Exxon) and don’t have all the rigs at their disposal yet - I am eager to see them succeed and perform as they claim. I will believe it when I see it.... hopefully in 6 months they’ll be blowing and going. Of course gotta get the paperwork completed first before turning to the right.

Keep us informed.

Aethon had three rigs running in NW LA as of Friday. 

Yes they are big in Louisiana and have activity in Wyoming as well. One well drilled and 2 permitted in San Augustine County - all 3 Cook unit.

Good luck to the company and its mineral lessors in San Augustine.

And may Aethon be on its way to being the next BIGGLY BIG ...

Good morning (almost 9:00 am here) Mr. Peel and to Speedracer: 

I have nothing to add but I do have a question about the Production Sharing Agreement:

I received my copy a few days ago and am wondering does this agreement in any way usurp/sidestep the need to lease more acreage; i.e. will they add to the acreage of the underlying unit?

I ask because near the end of 2017 we (siblings) received offers to lease remaining net mineral acreage (NMA) for a fairly low amount. We didn't take the offer seriously (don't remember details). My logic, ... the Ironosa is a producing unit why wouldn't the offering entity recognize lower risk by upping the proposed lease amount? Negotiations ended abruptly.

Do you recommend executing the document?

Thanks to all!

 

Phillip, that question is impossible to answer without a review of the terms of your lease and the PSA.  Both are properly the domain of an experienced O&G attorney.  I recommend spending a modest sum to have the assistance of such an attorney.  I wouldn't use just any attorney, it must be one who has practiced Texas mineral law for a reasonable length of time and represented numerous client in O&G matters.  You can do this by phone and email and the expense is worth the peace of mind, at the very least.

Thank-you Sir, ... very much!

Phillip:

Couple of points -

Keep in mind that in TX that you're in "pure pooling" country - RRC isn't going to come back and force them to form a unit in order to include your extra acreage.  If they have what they have under the lease, have the right to pool and/or pooling agreements in hand, and conforms with well and spacing requirements, they can pool just what they have with no issue.

Production sharing is something different - is it just straight allocation?  Proportionate percentage of the pool based upon acreage in the pool?  How are they allocating production?

Mr W - based on my experience w Aethon - that Production Sharing agreement might coincide with an existing lease and might allow the lease to be included (shared) with others in the area in order for Aethon to stretch over a longer distance with their horizontal laterals.

I’d recommend you contact Aethon and ask them what they plan and when and see what impact it will have with your interest.

Ask them how your (yours or families or entity the letter was mailed to) interest will be affected and if a longer lateral is planned that will cause your current decimal to change and if so how they make that calculation. In the event a new well is drilled and included an 8000 foot lateral and 50% of the lateral is under your interest and the remaining 50% lays under your neighbor then you’d be included at a 50% shared rate in accordance with your existing interest. The good news is the newer technology can really improve the production volumes if production is established.

Is this for San Augustine County?

Keep asking questions if this doesn’t seem to fit or if I can assist further.

BOL

Speed racer:

Yes, this provides an extra wrinkle - with longer laterals the standard 640 acre pooling provisions incorporated in many leases are insufficient to pool larger acreages in the era of 8,000 foot laterals.  Also, pooling strictly “to the wellbore” maybe insufficient to cover the drainage and/or offset rules.  In any event the agreement can then accomplish either or both tasks.  It’d be nice to have some more details re: specifics of the situation and what the stated plans are.

Just from having looked at numerous Aethon (nee St. Mary then SM Energy) unit plats... the original units tended to follow tract boundaries, with some of them ending up looking like a Texas gerrymander, with fairly short (by today's standards) hz. wells just to hold acreage. I tend to think that Aethon is trying to put together PSAs in order to accommodate longer laterals that just wouldn't fit into some of these units if they had to stay within unit boundaries. That means, in layman's terms, that stranded acreage, which might not get drilled otherwise, will now produce gas. That is to the benefit of all RI owners involved, IMO, even if you have to share production with another unit. Just follow the advice from our experts and get Aethon to explain how each unit share will be distributed.

JF

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