Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on August 27, 2009 at 12:20

Thanks, Les.

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Permalink Reply by Landowner on August 27, 2009 at 14:48

Les and Skip,
Once an operator files for units, what is generally the next step? By the time they get to this stage are the sections already leased?

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Permalink Reply by Skip Peel - Mineral Consultant on August 27, 2009 at 15:27

Landowner. There is no minimum number or percentage of acres within a section that must be under lease to a single operator in order to apply for or be issued a unit order. A unit order is active indefinitely so there is no clock running on additional development activity. Some operators (Samson Contour comes to mind) form units with no intent to be the operator (except in rare instances). They will do a joint venture with another company and designate them the operator of that unit. I have noticed a couple of Petrohawk wells in SC units lately but I expect that Samson's joint ventures could be with any number of partners in varying areas of the play. There are a number of companies that form units with the intent to operate. See Les B.'s Hall of Fame list in Drilling Rigs for good examples. Ultimately the most important factor governing development within a section is aging lease terms and extension options. The need to HBP non-producing leasehold is still the main driving factor in determining where development dollars are spent. In general, and for most companies, a unit order represents a commitment to "fully develop" that unit (section) which at least means an initial well and a pipeline to connect that well to the gathering system and sell the gas. In most cases it indicates a commitment to long term development and the intent to drill the maximum number of wells based on LOC spacing regulations. Leasing is a leading indicator of where the Play is headed but unit orders represent a higher level of intent. Many members would be surprised how often acreage is leased but no development activity follows. It is not rare and occurs for a variety of reasons.

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Permalink Reply by Parkdota on August 27, 2009 at 16:08

Is a unit order the same thing as a permit?

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Permalink Reply by Skip Peel - Mineral Consultant on August 27, 2009 at 16:14

No.

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Permalink Reply by Les Bamburg on August 27, 2009 at 18:23

Landowner, in some cases the operator may not even have 50% of the section leased. There is also a recent example of two different companies filing units for the same section with both wanting to be named operator.

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Permalink Reply by Landowner on August 28, 2009 at 0:13

I am I right in thinking that a unit order never expires? I am kind of suprised that two different companies filed for unit order in the same section. Seems like they are showing their hand if they didn't have the majority of the section leased.

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Permalink Reply by Les Bamburg on August 28, 2009 at 2:44

Landowner, yes a unit essentially never expires so no guarantee of immediate drilling activity.

The two companies filling was an unusual case. Between them they probably had most of the acreage in the section leased but both companies wanted to be operator.

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Permalink Reply by Skip Peel - Mineral Consultant on August 28, 2009 at 2:59

A unit order establishes the zone to be produced by depth based on a well log, it pools all mineral interests and it designates the unit operator. There have been a number of instances where a unit order is issued to one company and a subsequent order for the same unit to another. The original operator vacates the order in an agreement to allow another company to operate that unit.

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Permalink Reply by Henry on August 27, 2009 at 23:50

Landwoner,
As Skip said, a unit order does not imply immediate drilling. Some companies (e.g., Chesapeake) seem to drill soon after filing for a unit order. Others (e.g., SWEPI) have over 100 approved orders and little-to-no activity. SWEPI has much of southern DeSoto/northern Sabine in unit orders that were approved over a year ago. Yet they are not drilling there.

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Permalink Reply by Spring Branch,mineral owner on August 27, 2009 at 16:00

Les, almost as significant, IMHO, is the well permit by Encana in 12/10, Section 26. Other than the Messinger well, which was drilled as a vertical as I remember, this permitted well has pushed the drilling to the South East of the play.

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Permalink Reply by Les Bamburg on August 27, 2009 at 18:14

SB, you may have noticed I put a discussion item about this well under the Red River Parish Group. We will have to wait for an EnCana well in the Alpha Field to truly test the Southeastern corner.

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