Replies to This Discussion

Permalink Reply by Mac Davis on August 30, 2009 at 5:17

Well, maybe someone with more experience can give us some good info. What percent increase in the length of the perforated section of the horizontal does drilling from another section allow the driller?

Try and think if there's some other reason they want to drill from another section. If the producing unit is on land where the surface owners don't have mineral rights, maybe the surface owners won't sell them surface rights, or won't bend over and sell them surface rights cheap. Do you have "competition?" Are there a small group of property owners in the producing section who own the crucial surface rights?

It occurs to me that if I owned surface land and then someone comes in and says that they don't have to pay royalties on the land my family has owned for decades, I'd be very reluctant to sell them surface rights to place a well, etc. without a BIG payment.


Be careful that any agreement you sign comes with a real check you can cash on the day you sign the lease. None of this BS where they get you to sign an offer that binds you legally, but they can still back out. They might be making you an "offer" just or use it as a bargaining chip with the neighbors.

How much can you cost the O&G company by NOT selling them the wellbore easement? Do any of your neighbors face the same decisions? Maybe you should talk to your neighbors. Base what you ask for on these factors.

I think there's another factor to consider here. If they're forming a unit on your section, they have the threat of force pooling you. I don't think there's any "force pooling" equivalent for running the bore under your property if you're not in the unit.

I'd be VERY careful about any gotchas in the agreement you sign. The scam artists love to stick clauses in the fine print where you grant them rights other than the ones they pay you for. A common scam term even in "legitimate" leases will grant them mineral rights to any "adjacent" property, or property in adjacent sections, or even anywhere in the same parish.

I'd certainly try for a percent of the well production if it was me. Be sure it's all production of all minerals, not after the well gets paid off, no expenses deducted, etc. Negotiate on the percentage, not on the terms.

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Permalink Reply by Dion Warr, CPL on August 28, 2009 at 3:07

C. Simmons:

It would appear that you will just be the owner of land where a well would be drilled with the planned bottomhole / lateral would be based in an adjoining section. By doing this you would allow development to occur in such a fashion in that it would not be feasible, non-cost effective or cost-prohibitive for the operator to explore the adjacent unit otherwise within that vicinity.

Encouraging development would not in any way benefit you (other than proceeds from this proposed contract) because you are unable to reap any other rewards by being a cooperative landowner, as you own no minerals under your tract and would not benefit directly from production within the confines of your own unit. Good so far?

I cannot say that I have heard of this being called a 'backbuild'. I have heard of surface use (or wellpad) agreements with subsurface (or wellbore) easements. This is common with directional drills in which existing surface conditions within the unit are unsuitable or unavailable to drill. This would make you a surface (and subsurface) landlord. As such, you should be due rent, payable on an annual basis. Failure to pay rent should be fatal to your agreement (at your option), and should allow for a lien to be placed against production from the unit for failure to pay rent upon the agreed terms (should you choose to allow them to continue to inhabit the property while in breach).

Any such agreement should be for one wellbore and one lateral only. You should also have any subsequent placement of fixtures and improvements (including any ad valorem taxes due within the lease area) be paid for lessee at its sole cost and expense. Indemnficiation, abandonment and timely cleanup / restoration provisions in compliance with state and federal regulations should be included as well. Any placement of pipelines / flowlines / utilities on your property (even within the leased area) should be paid for and handled under separate agreement, with automatic consult as to placement (and lessor preference as to location).

IMO, an reasonable initial bonus is not outside of the realm, as long as a regular rental is due and payable to ensure lessee's commitment without needlessly burdening your property; some sort of wellbore override would almost certainly be a dealbreaker. Other than that, you know your property better than anyone: think about what you would want to allow on the land, what you are willing to deal with as far as noise and/or other inconveniences, and what it would be worth to you, even if lessee needed some equipment that you did not necessarily want to be there.

Good luck to you.

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Permalink Reply by Dion Warr, CPL on August 28, 2009 at 3:10

C. Simmons:

Whoops, I guess I just glazed over the 146 acres. Treat that property (and minerals) as a completely separate issue, much like you would negotiate the value of a trade-in vehicle separate from the purchase of a new car. You generally come up short if the deal gets 'bundled'.

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Permalink Reply by c. simmons on August 28, 2009 at 5:02

Thanks for all the info and valuble advice. I will probably be getting a call from the land guy soon. cs

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Permalink Reply by Lorrie D. on August 29, 2009 at 3:48

Dion Warr,
You said that they normaly do this when the leased land is "unsuitable or unavailable to drill". Are there other reasons that this can be done? The situation that I am dealing with is, the O&G company is drilling under my property from an adjoining lease due to the fact that the the property owner works closely with the drilling company. There is no reason that my property or any other surface property within the unit can not be drilled from. Is this leagal? Or it is just an immoral/ greedy land owner?

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Permalink Reply by Dion Warr, CPL on August 29, 2009 at 3:53

Lorrie D:

Give me some details please. You're being drilled on, or drilled under? You're in the unit that the operator intends to produce from, or from outside of that unit? Are you leased or are you not? Does your lease contain a subsurface servitude provision?

Please be as specific as you can.

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Permalink Reply by Dion Warr, CPL on August 29, 2009 at 18:37

Or, I could just read the other thread... Looks like it's been covered.

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Permalink Reply by c. simmons on August 30, 2009 at 1:07

Seems like it would be more cost effective to drill outside the unit vs drilling within and then
"back build".

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Permalink Reply by Randy on August 30, 2009 at 4:43

Only if landowners outside the unit will give you wellbore easements for cheap.

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Permalink Reply by c. simmons on August 30, 2009 at 7:35

Mac
your right about old family land. I intend on being a good steward. When I look at the "joke" offers it makes you just want to drop the whole thing.
The competition that is closest to me is tied up with lots of heirs. They are outside the unit just like I am. As far as I know , the land owners within the unit where the rig my go ( and then back build) they own their surface and minerals as it is old family land also.
I'm not opposed to a well or back build on my land BUT it must be with my lands best interest and NO one time payment. I agree with the 1-3 percent or a rental deal.
Appreciate all the info. Hope all this helps others. CS

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Permalink Reply by Loyd Riviera on August 31, 2009 at 7:18

csimmons,

Did the O&G company ask you for a location on your property outside of the unit? If so, did you turn the offer? If so, can you tell us why?

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Permalink Reply by c. simmons on August 31, 2009 at 9:40

Loyd,
They did ask for a location and even came out and looked at the spot. I was not interested in a one time payment for the well site. The starting price for them was 5000. /acre for the pad for the area needed , about 5 acre.
Since the well would be about 1500 ft. behind my house I need more than a one time deal if I have to look at it all the time. After all this is when the back build plan came up. I never even bothered giving them a list of added provisions for protecting myself and the land. cs

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