Replies to This Discussion

Permalink Reply by Aubrey C. Sanders, Jr. on June 22, 2011 at 6:58

phaco,

I have participated in Smackover well with Fina where my land had not been leased. No problems whatsoever and I would gladly do it again. You did not say where your land is located. The procedure you may need to follow may be different from my experience based upon what state you are in.  Mine happens to be in LA. If you are in LA you may not have to pay your share of costs "upfront". In such case the company will simply net your revenue until such time as they have recovered your share of costs.

 

Good luck in any event.

 

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Permalink Reply by The_Baron on June 22, 2011 at 9:49

assuming that you are in LA:

 

1) have you recived a 30:10 letter yet?

2) How certain of your title are you?

3) could you possibly be covered by an old lease, or are you just holding out?

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Permalink Reply by phaco on June 22, 2011 at 10:24

Baron,

 

I have owned the land in Bossier Parish for 8 years.  The previous owner had it for 20+ years.  The sale documentation of the real property specifically stated that minerals were included in the sale.  There is no current production in the section nor has there been production in the section since I purchased the property.  I have not run mineral title on the property, but would do so prior to making any further investment.

 

I was given lease offers when news of the shale was made public by CHK, but no offers in over a year.  Was not deliberately holding out, but did not feel overly compelled to lease - especially to CHK.

 

I do not feel being a nonparticipating mineral owner is a viable path as you are setting yourself up as an antagonist to an entity with more money, lawyers, and patience that most individuals.  A participating mineral owner on the other hand is a partner.  I believe I would have the opportunity to learn a great deal about this industry as a participating investor.  Of course it would be nice to make extra money, but the education could be much more beneficial in the long run.  I just do not know if the companies are allowing this option and I am interested if any other mineral owner has acted in this fashion.

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Permalink Reply by Henry on June 22, 2011 at 23:17

Phaco,

I want to make sure I understand what you want to do...  You seem to be saying that you would rather put your money into a well, rather than take advantage of the UMO laws that let you not put money into the well.  In the first case, you pay your share of the expenses, and collect income from your share of the gas.  In the second case, you don't pay anything up front, but wait for the well to pay out before you get your share of the gas.  In both cases, your return would be the same, right?

 

So think of this:  If you actively participate and put up your money, in the best case, you would put up about $15k/acre for drilling the well.  In the worst case, the operator could run into problems, and possibly double your up-front payments.  And then the well could stink.  You could be out $30k/acre, for a lousy well.  Why take that risk?

 

I would think you would get just as much of an education by taking the approach of NOT actively participating.  You'd still receive quarterly statements, that itemize all costs and revenue.  You would still have to argue with the operator over costs.  (And based on what I hear from others, you will have arguments.)

 

If you are actively participating, you will complain about costs just as much as someone who is not actively participating.  You will also be just as subject to their army of attorneys as someone who is not actively participating.  You will not be viewed as a partner -- you will be viewed as a thorn in their side.

 

To me it's a no brainer:  Don't put a penny of your money into the well.  Take advantage of the law, and let the operator take your expenses out of the revenue until they have recovered your share of the costs (as Aubrey Sanders said above).

 

JMHO.

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Permalink Reply by phaco on June 23, 2011 at 2:25

Henry,

 

Thank you for your reply. 

 

I am not aware of an UMO getting paid.  I have seen numerous people posting that the well has paid out or should have paid out but that they haven't received any monies from sales.  The state has not rushing to the defense of the mineral owner. 

 

So I see my options as

1. Lease

2. Go the route of UMO and potentially have to sue to get monies

3. Participate in the well.

 

As I recall, the Baron once said long ago that he would never be a HS UMO but he might participate in a well.  My question is has anyone done so and what was their experience?

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Permalink Reply by DrWAVeSport Cd1 on June 23, 2011 at 5:02

phaco,

 

Yes, there are UMOs in the Haynesville Shale, and I am one of them.  IMO, You would do well to re-read Henry's reply.  I am an After-Pay-Out Mineral Owner.  After the well pays out, I get income from the well.  However, there are so many variables here that it would take a thesis to examine and explain and choose which do or do not apply to a mineral estate.

 

Remember, prices are depressed at this time, costs are not.  Bonus moneys are low, gas prices are low, royalties are lower, and leasors are looking at longer leases.  

 

On the other hand, well costs are up and nat gas companies are choking back the wells so productions numbers are skewed to rediculous levels and the companies are using to their best advantage the LA severance tax exemption to full tilt...two year or payout...which leads to After-Pay-Out Unleased Mineral Owners waiting and waiting and waiting.  And, add to all of this, if one goes leased or unleased and is dealing with Chesapeake Energy, one receives the lowest $/mcf price around...IMO...ALWAYS.

 

In addition, one has to know as much as possible about their own mineral asset.  Where is your property located?  How much mineral property do you own in that area?  Are neighbors leased up?  What are your neighbors' thoughts about surface rights, leasing or not leasing, royalty percentages, etc.?  Are you in a pooled Unit?   When or Will your property become part of a Drilled unit?   Who is the operator?  Who will Drill?  When will they Drill?  Horizontal Well?  Or, Vertical well to only HBP?  etc., etc., etc.

 

And then on a more personal note...Does one have a need for extra moneys sooner than later?  Or, is one ready to wait and wait and wait for that extra income. The time value of money...  Is one's property located in a prime producing part of the Shale?   What does a mineral owner believe the future will hold for the Natural Gas Industry as a whole?  What does a mineral owner believe his mineral asset will produce over 10-20-30 years?  Or, will it ever be produced?   How long does/can a mineral owner wait for those answers?  And, most importantly, I think, is what is best for you and your families financial welfare?

 

I don't have enough time or space here to open up the dialogue for these scenarios.  It is lucky though, that you are a Gohaynesville Shaler.  You have an advantage here.  Many of these scenarios are being addressed on GHS, and lucky for all of us, knowledgeable GHS'ers are willing and want to provide help to those who ask. 

 

Getting back around to it...your question.  Yes, I am UMO.  I am dealing with Chesapeake Energy.  Yes, the well in our unit is close to pay-out.  It was one year ago, June 9, 2010, that our unit well began producing.  IP'd at 16,224 MCFD.  However, in Oct. 2010, Chk choked this well way back and now is producing around 150,000 mcf/month.  So, think about what has happened with this one well...    Gas prices are depressed, well is then choked back, and monthly operating expenses are adding up (IMO Monthly Op Ex is outrageous for Chesapeake Energy wells), and well pay-out is extended way beyond what a scenario of higher gas prices, less choke and lower expenses would have produced.   This well could have reached payout status months and months ago.

 

I am still waiting on a Chk check.  And, Chesapeake Energy has withheld approximately $140,000 of mine in mineral revenues.  I received no bonus and don't receive royalties.  Wise decision to go UMO????  I cannot answer that question even for myself...yet.

 

Phaco,   We are still in the infancy of the Haynesville Shale story.  I believe that the future will be better for all mineral owners and our communities as a whole.  I believe natural gas will be a powerful fuel source for our Country, and We just haven't seen enough of the BIG picture to put on the record yet.   Would I go unleased again?  Yes.  I am looking at the long haul, and IMHO, I believe our natural gas assets will be better utilized and produced and marketed for many more economic purposes/products and to many countries who are seeing natural gas as a major fuel source for shrinking their global carbon footprint and grow their financial footprint at the same time.  I believe we will get there.  And the Haynesville Shale will be our contribution.

 

All but a few mineral owners will lease, are content to do so...and that is the way it goes.  However, I am one who decided that the bonus, mineral and lease terms offered to me were not for me and my family.  Had they been back in Summer 2008, I would have leased.  So for what it is worth and what it is not worth (LOL)...Each to his own, good GHS friends and fellow Shalers.

 

And, Phaco, good luck and best GHS wishes to you and yours.  One last comment...GET An O&G Lawyer to read your mineral lease and advice...BEFORE...you agree to or sign anything.

 

P.S.  Henry...I appologize for holding back on production pricenumbers from my Unit well.  I will get these to you today, holding my breathe, I don't get called out.  I have been having "Issues" with Chk and numbers...Shocking!  (LOL)  Thanks Henry for your work and continued support.  It is greatly appreciated by us all.

 

DrWAVeSport Cd1  June 23, 2011

 

 

 

 

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Permalink Reply by DrWAVeSport Cd1 on June 23, 2011 at 5:49

Phaco,

 

Addendum:  BIG Questions to answer also have to do with the State your minerals are governed by?

Texas, Louisiana, Arkansas, Oklahoma...They are all very different per UMO, WI, and leased, Participation and Nonparticipation.   Very Different.   IMHO, Louisiana balances mineral owner interests more equitably than other states.  Just FYI.

DrWAVeSport Cd1  June 23, 2011

 

 

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Permalink Reply by The_Baron on June 23, 2011 at 7:23

Phaco,

 

We have participated in wells due to owning exisiting leases. I will say that for the most part payout is much longer than anticipated, if at all.  I wouldn't count on to much protection either from being a WI. For example, CHK has refused to provide us with an operating agreement, and simply referes us to RS 30:10. It is difficult at best to get any difinative backup invoices from the majors, as many use wholly owned subsidiaries.

 

As far as UMO's being not paid after pay out, I would question how they think or "know a well has paid out. If they have documantation from the operator, then it is a relativly simple task, but with out such documantation, it is impossible to know when payout occurs. Keep in mind that the UMO to accrues monthly operating expenses that musty be paid out of production.

 

Personally, I would lease. Even if it was a cost free lease with good terms and good royalty.  Just my opinion.

 

 

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Permalink Reply by Henry on June 23, 2011 at 7:36

Baron makes a good point about a WI not getting protection.  KB used to make that point a lot -- if the company wants to be difficult to work with, they will be difficult with you regardless of whether you are a WI or after-payout-UMO.  She once said there is more case law and precedent that applies to WI than UMO.  But either way, things could be difficult.  I would not expect any better treatment as a WI compared to a UMO.

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Permalink Reply by phaco on June 23, 2011 at 8:00

Thank all of you for your time and input.

 

I have read and re-read what each of you have taken your valuable time to share and I sincerely appreciate each of you.

 

We will be patient and see what happens.  If we go WI or UMO I will definietly share my experience.

 

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Permalink Reply by Aubrey C. Sanders, Jr. on June 23, 2011 at 8:01

phaco,

I have participated as a UMO on drilling with at least 6 different  companies. My acreage is small and is in 4 different production units. I was in position to assist these companies in securing leases and in several instances I "brought" the deal to these operators. Several of them are VERY large co.'s. Being a geologist and landowner was a benefit to me in getting my "foot in the door".

 

I have very few problems with operators overcharging. When I did have an issue I was able to get favorable solutions almost always. You do have to be proactive. The first time I participated as UMO was about 10 years ago with Fina. That well took about 11 months to payout, at which time they began paying me w/out any problem. For me I am happy with my results. At the same time I know people who may have been screwed over.  I think Dr.WAV.sport has made a thorough evaluation and I think addressed the situation very well, as have the others who have posted on this subject

 

GOOD LUCK

 

I

 

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Permalink Reply by The_Baron on June 24, 2011 at 5:05

Aubrey,

 

Personally I am afraid that several of the "large independents" are now making it policy to be as hard to deal with as possible. Most notably, Chesapeake Energy.

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