Replies to This Discussion

Permalink Reply by Greedy Landowner on April 16, 2010 at 16:26

Supposing for a moment you and those who are backing you are victorious in your struggle, what is to happen with all of these 640 acre units which are already in production? Are those landowners within that section who have been paid from what you say are illegally drilled and produced wells supposed to give the royalty payments back?

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Permalink Reply by Andrew Walker on April 17, 2010 at 1:28

Again, this is not my lawsuit, but that is a good question. Any remedy would have to be approved by a judge and I don't believe any would ask for repayment of royalties.

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Permalink Reply by w.r. frank on April 15, 2010 at 15:52

Any change in the existing 640/unit would only benefit large landowners. The problem now is the need to do longer laterals within the 640A/330' limits. This effectively limits laterals to 4,620'. I have property in six units. Nobody would be able to drill economically on any of my property if the O&G can't unitize enough for a $9MM to $11MM well with at least a 4,600' lateral. If 80 acre spacing is the correct number, O&G's cannot HBP units within lease terms and IMO that much property coming back on the market would depress bonus resign values.

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Permalink Reply by Mac Davis on April 17, 2010 at 9:05

The units are supposed to be an area that can be "efficiently and economically drained by one well." If you're going to drill eight wells per section, the unit could be defined as one mile by 1/8 mile and cover all the area drained by the current drilling strategies. For that matter, I think there is no legal reason not to create a 2 mile by 1/8 mile unit.

You could drill exactly the same well as before. Your gas production would be the same. The amount of acreage you'd have to lease would be 1/8 of what it has been before for a single well. Yes, individual landowners would have more of a say in whether they get unitized or not.

Yes, leasing companies bought leases based on the idea that they would be able to create 640 acre units. They expected the government to allow them to use the leases based on what they knew to be fraudulent and illegal unit orders. I will shed no tears if the leasing companies lose money because the government does not allow them to follow through with their illegal unitization plans.

The idea of having one unit per section may or may not be the best thing in general for everyone involved. However, it IS illegal.

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Permalink Reply by sesport on April 17, 2010 at 12:29

Actually, GD, the rules of the ball game(s) change all the time, as was the snowball effects in the case of the '58 Tangerine Bowl that WASN'T. Teammates were known to have participated in the game all year, then someone tried to pull a "fast one" to deny them the chance at the "big time." Nothing "fair" or "sportsman-like" about that. Eventually, the rules changed.

Personally, I'm taking this up with those I know & trust in my "Everyday Joe" life. This may be too important to chance that some anonymous forum posters may or may not know what's best for individuals.

What's that phrase constantly urged around here??? Oh ... "due diligence."

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Permalink Reply by Andrew Walker on April 17, 2010 at 15:39

So, Gosh Darn, you think "it's a law that appears to be quite fair to all involved?" Remember these are compulsory units where mineral owners are force pooled into these units. They have no choice. They have no ability to get out of the unit or control what happens in the unit. It is therefore the duty of the Commissioner of Conservation to assure that all these mineral owners are treated fairly and provided with "equal protection under law" as guaranteed by our U.S. Constitution. Would you agree? That is the basis of our drilling unit law that requires a relatively uniform pattern of one-well units. The system worked for decades, but has been corrupted relatively recently. Take some of our Cotton Valley fields, for instance. There are situations where you have two neighboring units, essentially geologically identical, but with much different development. One unit may have 20 or 30 wells while the other unit has just one well. What is fair about that? The same thing is happening with the Haynesville. There are already some units with 8 drilled and permitted wells sitting next to undrilled units. I don't see anything fair about it. All these force pooled owners deserve to see equal development in the same time frame.

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Permalink Reply by Henry on April 18, 2010 at 0:11

Andrew,
I once emailed the DOC about this issue.... I asked why some units could be HBP with a simple vertical well, which obviously did not drain 640 acres. I was told that DOC does not tell drillers how to do their job.

Yes, there is a big lack of uniformity in how mineral owners are treated -- ask those mineral owners who are HBP by vertical wells.

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Permalink Reply by Andrew Walker on April 18, 2010 at 2:08

I respectfully disagree with you, GoshDarn. It appears you and I have similar roots. My family moved into northwest Louisiana in the early 1800's. My father has worked in the state as a petroleum engineer for the last 60 years. I have worked as a geologist for the last 25 years. We own land scattered around the state. We know the background of this law. We have heard complaints from those discriminated against in these force pooled units. We did not initiate the class action suit. I am the little guy paying for the billboards. It may interest you to know that the suit is backed by the foremost authority in oil/gas law in the entire state - Jack Caldwell. He was one of the ORIGINAL authors of the Louisiana Mineral Code and also served as Secretary of the Department of Natural Resources. I understand he is brilliant and believe he has too much experience and integrity to be described as a money-hungry, "grab-bag" lawyer.

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Permalink Reply by Andrew Walker on April 18, 2010 at 2:51

... I am definitely not tight with any politician or big company...and yes the billboards have put a dent in my little budget! Thanks for your reply.

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Permalink Reply by Mac Davis on April 17, 2010 at 19:24

GoshDarn, I'm not necessarily saying that the 640 acre unit orders are good or bad for the landowners. I'm simply stating the fact that they're fraudulent and illegal. The unit orders say that the unit can be "efficiently and economically drained by a single well."

Everyone involved understands what's meant by "drained." "Draining" means removing the gas or oil from the unit in question. No one believes that a single well can efficiently and economically drain a 1 square mile section. The commissioner of conservation is approving an order with a statement that he knows to be fraudulent.

"And this has been the law for a long time." No, it is not the law. The law specifies a forced pooled unit must meet the "efficiently and economically drained by a single well" requirement. This is not true for a section in the Haynesville shale.

1 unit per section might be a fair way to form HA units. Unfortunately, it's illegal. If they want to do that, they should change the law.

Mineral interest owners DO get cheated by these fraudulent units. If my mineral interests are on the other side of the force pooled unit from a well, my mineral are being fraudulently held by the well that doesn't drain my minerals. If I'm leased, my lease is being fraudulently held by production. If a proper unit had been defined, they'd have to drill my 1/8 section or let the lease expire at the end of the term. I would get 8 times the share of gas production for the well in my 80 acre unit. (Yes, the well would go dry 8 times faster.)

Suppose the designated unit operator never gets around to drilling more than 1 well in the 640 acre unit. At best, he will only be able to produce 1/8 of the potential gas in the unit. I have lost 100% of my mineral rights, but I only get paid royalties equal to 1/8 of the value of my minerals. He gets to stick 7/8 of my mineral rights in his pocket and fraudulently extend the term of my lease.

In order to hold my lease, he's legally required to start production of my minerals. It's not enough to start production of one of my neighbor's minerals and share the royalties with me. A HA well that is located on the other side of the section does not do any production of my minerals. The lessee is required spend the money to produce my minerals and start producing or he can't hold my lease past the original lease term. If he doesn't start production of my minerals, I get my mineral rights back, and can lease them to someone else.

Because of the fraudulent and illegal forced pooled units, he can extend the leases on everyone in that section while only spending 1/8 of the money on drilling that would be require if the law was followed on unit formation.

640 acre Haynesville shale units are clearly illegal. They were clearly illegal when the leases were signed and the leasing companies and production companies knew it.

As sesport says, the rules change all the time. However, this rule hasn't changed. It's been against the rules since the Haynesville shale play started.

However, I really doubt they'll ever bother to obey or change the current law.

The point may very well be moot for existing units. It may very well be that if you didn't protest the unit order at the time that it was formed, you may have lost your right to appeal.

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Permalink Reply by Kat Bloomfield on April 18, 2010 at 2:38

your comments on what is and what is not fraud are apt. It parallels what's going on with those wall streeters, such as Goldman Sachs, et al, who love vagueness in the SEC rules so they can trade with impunity. As noted in a recent article entitled "the fallacy of fraud," addressing the financial crisis brought on by Goldman et al: "The lack of clear and specific rules, especially regarding conflicts of interest, relegate the SEC to charging generic "fraud," which denies the accused fair warning and substitutes vague tests such as “dirty pool” or “smell,” both of which Goldman fails. The irony is that the last thing the financial community wants is clarity and specificity, since vagueness gives them a competitive advantage." See http://www.thedailybeast.com/blogs-and-stories/2010-04-17/the-falla...;

similarly, O&G prefers vagueness in the rules . . . A lot more room to dance and wiggle and writhe and twist and turn and S P I N.

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Permalink Reply by sesport on April 17, 2010 at 12:30

Mac - Thanks for doing some better math than I could. I suppose the legality or illegality remains to be seen.

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