Replies to This Discussion

Permalink Reply by Kat Bloomfield on April 20, 2010 at 1:03

good question. I don't see any legal reason that current royalties due could be held in escrow. Why? Title is clear. The lawsuit doesn't challenge title to the funds or the underlying property/minerals. But, don't put anything pass a lawyered up E&P Company. From what I've read in briefs, there are some, particularly one, that will argue ANYTHING.

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Permalink Reply by The_Baron on April 20, 2010 at 3:47

Caliente,

Do you believe that the units already formed are not in danger of being disolved? If the units were disolved (as the suit claims that they are formed in contridiction to the law) then wouldn't title be in question?

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Permalink Reply by Mac Davis on April 20, 2010 at 14:12

I think there's a good chance that if the property owners didn't object at the hearings when the unit was formed, they may have very limited ability to appeal now.

Sometimes, you can't appeal at all if you didn't appear at an earlier hearing. Even if you did appear, you may not be allowed to bring up a new issue on appeal. Appeals may be limited to issues considered at the first proceeding, or to procedural matters such as failure to notify, denying counsel, etc.

Permalink Reply by Kat Bloomfield on April 21, 2010 at 1:43

Hmmm. Dissolution of the unit does not change ownership of the minerals. But, it does change equitable distribution. I would expect that any dissolution order would have to take account of the equities and redistribute accordingly.

Permalink Reply by Mac Davis on April 20, 2010 at 13:56

By drain does it NECESSARILY mean COMPLETELY drain?

You're twisting the words. The operative words are "economically and efficiently drain," not "drain."

The unit definitions are, by law, based on one well per unit.

80 acre units with one well will produce eight times as much gas per acre as a 640 acre unit with one well. An 80 unit is eight times more efficient.

It costs the same amount of money to drill a single well on a 640 acre unit as it does on a 80 acre unit, so there is no economic advantage.

There is no way you can claim a 640 acre single well unit can efficiently drain the unit.

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Permalink Reply by Andrew Walker on April 22, 2010 at 4:42

Drain does not mean COMPLETELY drain. No petroleum reservoir is completely drained. The amount of hydrocarbons drained or “recovered” depends on several factors including the formation’s porosity, permeability, and reservoir energy. Each reservoir has a unique “recovery factor.” For example the Haynesville Shale may hold 200 bcfe of natural gas per section (“gas in place”) but its anticipated recovery factor is only around 25%.

Our lawmakers realized that calculating the area drained by a single well would be an imprecise measurement so they decided we should err on the side of conservation. Thus they set a unit size as the MAXIMUM area that can be efficiently and economically drained by a single well. The goal is to prevent “waste.” The drilling of more wells than is necessary to drain a reservoir is a waste of everything from machinery, pipe, and fuel to drill the well to labor to unnecessary or excessive surface loss.

As far as the economic part of the equation, operators are looking for the well to “payout” in relatively short time frame. These Haynesville wells qualify. Years down the road when a well’s operating costs exceed their profits they will be plugged and abandoned.

I wish I had an answer for your questions about “royalties in escrow” and suspension of “running time on leases,” but I am not sure. I imagine the judge will have a lot to say about these. It looks to me like those tracts inside the drainage area of Haynesville well will be awarded 8X their present royalty and many outside the drainage area would be able to renegotiate their leases. This would be a plus for those who got “ripped off” in the early stages of Haynesville leasing.

You are right that “the devil is in the details.” I don’t have all the answers but the bottom line is that the law should always be enforced. I disagree with your opinion that the drilling is fair and legal. Have you read the “details” section at our website (fairdrilling.com) to see the stories of some of the victims? The state’s most respected oil & gas attorneys in history consider the drilling illegal, not to mention Supreme Court justices. Why do you disagree with them when the law is clear?

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Permalink Reply by Linda Whatley on April 28, 2010 at 10:52

I agree with Ray.

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Permalink Reply by Dion Warr, CPL on April 21, 2010 at 13:17

Caliente:

And considering that is has been largely left to the states to regulate in these matters, the respective states' Supreme Courts will ultimately have the final say IM"IANAL"HO, except possibly in instances where federal lands are substantially involved.

I just had a thought somewhat tangent to the discussion: considering the general imperviousness of the shale (without frac help), if the plaintiffs prevail, does this result in the landscape of the HS looking more like today, or like Caddo Pine Island? Just a thought.

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Permalink Reply by Kat Bloomfield on April 24, 2010 at 0:17

interesting note re: federal vs. state court. A suit can be in federal court even if it's not involving BLM lands---just need diversity of state citizenship between the plaintiff side and defendant side. So, if a texas citizen owned a 640 acre unit and were to file suit against the operator, who say may be an OK citizen, federal court could be a proper venue even though not one federal question is involved. It's jurisdiction based on diversity of citizenship -- premised on the antique notion that non-residents of state A could not get a fair shake in a state A court.

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Permalink Reply by Dion Warr, CPL on April 29, 2010 at 13:58

Caliente:

I understand the portion about diversity (I just dealt with a property not too long ago with owners in multiple states filing suit against a multinational corp.), but I am not sure that the fed. court will look past the state statutes and precedent regulating development (particularly LA, which is unlike any other state by and large).

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Permalink Reply by Mac Davis on April 21, 2010 at 9:44

forced pooling survives constitutional challenge...

Caliente, you have an interesting and important point that I missed at first.

The discussion here has been mostly that 640 acre sections are illegal because they don't conform to the law. Your point would suggest that even if LA law did permit 640 acre sections, it wouldn't be legal because it doesn't pass constitutional muster.

And I agree, there's little chance for this lawsuit to succeed. Even if the lawsuit "succeeds," the most likely outcome is that the lawyers clean up, and the "defendants" get absolved of their legal liabilities for a small fraction of the true financial value, and the landowners get a sham payment and lose their right to sue in the future.

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Permalink Reply by Kat Bloomfield on April 24, 2010 at 0:18

All litigation is a crapshoot, particularly 'roun these parts. And, yes, my point is that even if legal statutorily, there still lurks constiutional doubts.

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