Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on September 6, 2014 at 13:40

Unleased Mineral Interests (UMI) are not subject to risk penalties.  A unit operator may only recover their well cost from the UMI's share then they must pay them for their proportional share of unit production.  Mineral lessors receive payment based on their proportional share of the unit production based on their royalty fraction from first production.  The UMI is not leased so they receive 100% but only after well payout.  The unit operator therefore has an incentive to negotiate a lease with all the unit mineral owners.  Of course they have the option  to leave a mineral interest unleased if they can not come to acceptable terms.  That comes down to business economics.  A relatively small percentage of unleased mineral acres in a unit do not render the unit operations non-commercial.  A relatively large percentage would make the unit economics less than attractive and the operator would rather spend their development dollars elsewhere.  This is a short answer.  For more detail, use this link:

http://www.gohaynesvilleshale.com/UMI-Basics

• ▶ Reply

Permalink Reply by Kevin Raybourn on September 7, 2014 at 13:39

We are next door to the Alford Unit in Washington Parish....Little Silver Creek Field....Most of the Large Farms have been leased and re leased.....We are expecting to be in a unit if / when they start what I call offset activity similar to that at the Blades ,Verberne, Williams area 7 miles to the west of here......I have some small acerage coming up for a 2 year option by Feb.15 as do a lot of people here.. but I have 16 acres UMI...One Unit East of  the Alford will take us in.....We were hoping and expecting to lease sooner or later....But is there any advantage to staying UMI knowing it will not render the unit non commercial OR will the operator well costs run it down below the commom 1/8  to 3/16 fraction around here ...Is there a  chance to make more even after well cost...Or is it too risky.???

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on September 7, 2014 at 14:02

Yes, there is a risk.  Not all wells are drilled successfully.  There have been a number of wells with serious mechanical problems so far in the TMS Play.  Those may produce enough to meet the production in paying quantities definition and thereby hold all the leases in force.  The question then would be when will one or more alternate unit wells be drilled?  Obviously no one can predict if a well will be drilled successfully or how long it may take for development beyond the unit well.  If everything goes perfectly a UMI might receive more income per acre than lessors in a unit. 

Except for experienced mineral managers who employ O&G accountants, O&G attorneys, reservoir engineers and assorted other professionals, it is next to impossible to track and analyze all the potential costs that an operator can attribute to UMI acreage not to mention the need to track and verify production.  For those who don't have the ability to provide that level of oversight they can trust the operator to follow regulations and not make any mistakes and take what they get paid.  Just keep in mind UMIs receive nothing from wells that do not payout.

For laymen with small ownership interest I think it is better to lease.  Lessors get paid from first production whether a well ever pays out or not.  Spend a little money for some professional assistance to determine reasonable terms and review the language in the lease prior to execution and then do the basics yourself.  Learn how to review production of your unit wells and track development activity in your unit vicinity through the state database, SONRIS.  Document contact with the staff of the operating company, keep good records and know who to go to for help when you have a problem or question that you can not resolve yourself through correspondence with the operating company.

• ▶ Reply

Permalink Reply by Kevin Raybourn on September 8, 2014 at 12:31

Thanks for the Info. It clears things up  after hearing a lot of different answers about how this works.....I think everyone in these 2 parishes are welcoming the drilling and are happy to sign leases , including myself.........

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on September 8, 2014 at 15:21

You're welcome.  Good luck.

• ▶ Reply