For Whom The Well Tolls
“No man is an island, entire of itself” begins the poem “For Whom The Bell Tolls,” but landowners atop the Haynesville Shale may not enjoy the discrimination they’ll find in drilling units. Louisiana state law requires our Commissioner of Conservation to prescribe units that can be drained by one well. Haynesville units being created, however, often will require more than one well and do not conform to state law. That leaves landowners vulnerable to discrimination as there is often unfair apportionment of drilling and production. With the drilling of each well, more and more property rights are affected, putting more and more investments at risk. If not corrected, this will expose oil companies and Louisiana to relentless damage lawsuits. It is critical for Louisiana to enact a new type of compulsory unit specifically for the Haynesville Shale that will provide equal protection for property owners.
Our Governor is informed of the situation but has not taken action. At present, one landowner may have a well and experience all surface damage and gas drainage in a unit yet his income may be divided with others whose gas bearing land will never be drained. If his lessee has better terms in another unit, those owners may prosper with many wells while he is stuck with one. The possibilities for discrimination are endless. The average citizen is unaware that companies have been crossing the line or that our state has been content to let them. Attorneys for our state argue that the Commissioner has the broad authority to make any reasonable rules, but we contend that violating state law is not reasonable! Highly respected Tulane law professor, Luther McDougal, studied this issue, and was described by his colleagues as a leader, “speaking only when he has something to say and only when something needs to be said. His judgment and opinions are respected by his colleagues. We know he is a man of honor, integrity, high standards and common sense. There is no hidden agenda. There is no ‘what’s in it for me.’” McDougal concluded that once a producing well is located on the drilling unit, the unit is a developed area, and no other well can be drilled on the unit. The Louisiana Supreme Court has ruled that the only restriction on the Commissioner in establishing drilling units is that “such an order be reasonable and unit prescribed must not exceed the maximum area which one well can efficiently and economically drain.”
It is unconscionable to ask Chesapeake Energy and the other companies to play guessing games with our state on the legality and future of these enormously expensive wells. A new type of compulsory unit is needed that will allow multi-well, 640-acre shale units, while providing equal protection for property owners. In order to turn this area into an economic oasis and maximize gas production, we must first provide a firm legislative foundation for future drilling. The time for inaction is over. The clock is ticking. So, property owners, exploration companies, and the State of Louisiana, do not ask for whom the well tolls. It tolls for all of us. (For details email: fairdrilling@aol.com)
Our Governor is informed of the situation but has not taken action. At present, one landowner may have a well and experience all surface damage and gas drainage in a unit yet his income may be divided with others whose gas bearing land will never be drained. If his lessee has better terms in another unit, those owners may prosper with many wells while he is stuck with one. The possibilities for discrimination are endless. The average citizen is unaware that companies have been crossing the line or that our state has been content to let them. Attorneys for our state argue that the Commissioner has the broad authority to make any reasonable rules, but we contend that violating state law is not reasonable! Highly respected Tulane law professor, Luther McDougal, studied this issue, and was described by his colleagues as a leader, “speaking only when he has something to say and only when something needs to be said. His judgment and opinions are respected by his colleagues. We know he is a man of honor, integrity, high standards and common sense. There is no hidden agenda. There is no ‘what’s in it for me.’” McDougal concluded that once a producing well is located on the drilling unit, the unit is a developed area, and no other well can be drilled on the unit. The Louisiana Supreme Court has ruled that the only restriction on the Commissioner in establishing drilling units is that “such an order be reasonable and unit prescribed must not exceed the maximum area which one well can efficiently and economically drain.”
It is unconscionable to ask Chesapeake Energy and the other companies to play guessing games with our state on the legality and future of these enormously expensive wells. A new type of compulsory unit is needed that will allow multi-well, 640-acre shale units, while providing equal protection for property owners. In order to turn this area into an economic oasis and maximize gas production, we must first provide a firm legislative foundation for future drilling. The time for inaction is over. The clock is ticking. So, property owners, exploration companies, and the State of Louisiana, do not ask for whom the well tolls. It tolls for all of us. (For details email: fairdrilling@aol.com)
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Replies to This Discussion
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Permalink Reply by Sweet Tea on
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Pooled Unit/Drill Site Question: Here's a situation I've heard of recently. A landowner/mineral owner
(call him Bob) leased with a production company 2 years ago.
A Haynesville well was drilled in that section- 7 months ago. The land/mineral owner(Bob) has yet to receive any royalty (company says there's some type of problem-- land/mineral owner has contacted the production company several times, and was given a different story every time).
Needless to say, Bob is not a happy camper, and does not trust this company now.
Now the same production company is approaching the landowner/mineral owner(Bob) and wants to purchase a drill site location, BUT---- says this well is to be located in the "corner" of Bob's section, on Bob's land (that Bob owns minerals on)--- ONLY this is to be a Horizontal well to end up in an adjoining section, and Bob WILL NOT receive any royalty from this well.
Bob just gets the privilege of having a location on his property. And a little $$ for the site.
He is being told that
Only those that own minerals in the section that the well bottom hole is located will receive royalty from this well. But here's the crazy part-- Bob is being told by this production company that he has no choice but to let them drill. Has anyone else heard of such?? Can a production company force
a landowner to to do this?
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Permalink Reply by Jay Murrell on
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If the facts are as you have stated them, Bob can tell these guys to go fly a kite...or, if they are desperate and cannot find a surface location except on him, maybe there could be some big bucks for Bob.
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thanks for the reply, Jay. These are the facts. Bob was also contacted by an attorney
from this company saying that terms of the lease Bob signed when leasing his property
has a provision in it to allow this.
My first thought was, it is only allowed if Bob agrees to it.
I have a copy of the lease . The one thing that stands out to me is a paragraph saying (paraphrased) " Lessee is granted the right to any part of land described, without the Lessor's joinder, to combine, pool, or unitize
the acreage or min. interest covered by this lease, with any other land in the vicinity , so as to create one or more operating units, Provided that NO ONE OPERATING UNIT in the case of gas , embrace more than 640 acres."
The unit that Bob's land is in is a 640 acre producing unit-- the unit includes the whole
640 acre section. It looks like to me that the wording in his lease only allows for
a maximum 640 acre unit.
Looks like Bob will wind up paying for legal advice -- his "shale" account is starting out in the negative.
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Permalink Reply by Jay Murrell on
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ST:
It sounds to me that the proposed well will be in a unit that Bob has an interest in. I just don't see how they could use his surface for a well that would produce from lands other than his. That clause you cite is the pooling provision. Not applicable to your question. Are there special provisions in the lease that say anything about surface use other than those in the printed form of the lease.....would be an exhibit to the lease.
Also, as to his royalies, he needs to send a demand letter for an accounting and payment of royalties. If the well(s) have been producing for some months he should be able to get them loose.
Who's the operator?
JM
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Permalink Reply by Jay Murrell on
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ST:
Good advice, but, you can get 3X damages if you ask the right questions in your demand letter.
If it has been more than 6 months since first production, get a lawyer to write your letter. Just my suggestion. Jim's way will do fine.
JM
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Permalink Reply by Grillin' - MmmMmm on
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I don't have time to read the lengthy document, but is this guy saying that drilling multiple wells in a unit violates La. law regarding units? Thus putting the units being formed in possible legal jeopardy?
And if its correct, that would mean the unit could only be the size of the drainage for a well, widely expected to be 80 acres for HS. That would mean each well could only hold 80 acres, forcing operators to drill many more wells to hold acreage. Could it be this guy's intent to get more and more acreage exempted from HBP terms, forcing the operators to drill more wells faster or risk losing the lease acreage?
Or, his intent just to get the law changed to reflect how its currently being interpreted, eliminating the possible challenges to these units?
Don't know.
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Permalink Reply by Andrew Walker on
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Everyone: Who butters our bread you ask? I am a small time independent petroleum geologist working the texas gulf coast. My father is a petroleum engineeer, operating just a few old wells in north Louisiana. We own several tracts of land over the Haynesville Shale and have leased the mineral rights. If you want to be sure of our intent, read the article. Sorry for the length, but it is a complicated issue. We have no desire to get involved in the Haynesville play other than to see that our property - and everyone else's properties - are treated fairly in unitization. There are great injustices occurring and the average property owner is absolutely clueless as to what is about to hit them. We need to take action now to assure equal protection of property rights and success of the Haynesville Shale.
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Permalink Reply by Andrew Walker on
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Jay: There are many possibilities for unfair discrimination in that system. Here's just one: a company may operate two adjoining units. If they have better terms in one, where do you think they will drill the most wells? One landowner may have one, marginal, choked back well in his unit, while his neighbor benefits from multiple wells in the next unit. There may be no geological reason behind disproportionate drilling like this. Please read the full article and you will understand.
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Permalink Reply by Grillin' - MmmMmm on
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How is that unfair? There is no drainage occurring, as the drainage radius is very small. The slower producing unit's gas is still down there and it will be produced.
Actually, one could make a very good argument that a mineral owner would be advantaged if his property was "only" being produced by one well right now. Wait a few months/years until gas prices go up and then produce the gas.
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Permalink Reply by Andrew Walker on
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Yes, Mmmarkkk, the slower producing unit's gas is still down there, but there is no guarantee it will ever be produced. One well can hold the entire unit. Title 30 requires that each tract receive its "just and equitable" share of the total production from the developed portion of the field. Time is a factor. I don't want to wait 5, 10, or 30 years for my fair share of production...do you?
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Permalink Reply by Jay Murrell on
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Andrew:
If I have a mineral interest in two adjacent sectional units with different operators in each and one operator does dual completions in the Hosston and Cotton Valley, and the other operator likes single completions in the Cotton Valley and chooses to keep the Hosston back of pipe, would you want there to be a time limit on the second operator's ability to hold depths above current producing horizon?
Jay
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Permalink Reply by Andrew Walker on
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Jay: That is an interesting question. The LA Supreme Court has ruled that, in unitization, private contractual lease contracts must yield to a proper exercise of the police power...but only to the extent they are in conflict with the Commissioner's orders. In your scenario the second operator would probably just be bound to his specific lease provisions. As the Hosston is a very lenticular sand, often discontinuous from well to well, a "prudent" operator could not be forced to produce it to protect from drainage from adjacent units...as this would not be occurring....
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