I need YOUR input!
Ok all you intelligent “shalers” out there, I have a project for you! As many of you remember from my attached article, our state law (Title 30:9) stipulating one-well-in-the-optimum-position-of-each-drilling-unit has been twisted into any-number-of-wells-anywhere-in-any-drilling-unit. This has led to rampant discriminatory practices. For example do you remember the 92 year old, World War II vet from my article? He went to the trouble to travel to Baton Rouge to speak before the Office of Conservation many years ago -- asking for fair treatment of his property in a Cotton Valley unit. Today, 33 years after unitization he still watches helplessly as adjoining units prosper far beyond his unit. What if unfair, unbalanced development like this was to occur with Haynesville Shale units? Doesn't this violate the "equal protection" provisions of our state and federal constitutions? (And this is just one of many types of discriminations possible) I want to correct the injustices and have proposed the solutions below. I would like YOUR input, YOUR opinion and YOUR suggestions. I’m going to leave you folks alone with this and check back in a few days. I’ve seen the intelligence out there and will value any response.
The solution, as I see it, is for Governor Jindal to:
1) Make a formal declaration that the state has made a serious error in allowing the drilling of “alternate wells” within drilling units.
2) Reset the “allowable” for each drilling unit as the production capability of one well.
3) Require in writing immediate plugging and abandonment of alternate wells in drilling units unless they are approved in writing by the affected surface owners and the mineral owners within a particular drilling unit. Mineral leases and surface use agreements would be subject, in some cases, to renegotiation.
4) If no agreement is reached and the above plugging occurs, declare those drilling units invalid at that point in time when the first alternate well was approved.
5) Prosecute/penalize the operating companies who have violated this law on drilling units.
6) Enact a new type of compulsory unit (not a Title 30:9 "drilling unit") specifically for the Haynesville Shale that will:
a) Provide equal protection for all property owners.
b) Provide for 640 acre units corresponding to sections.
c) Require a unit development plan from the operating company assuring that the unit be fully developed within a reasonable time frame with multiple wells (and as market demand allows). Operators would be able to amend the plan in subsequent hearings as additional geologic evidence from well histories, seismic, etc. became available.
d) Set minimum and maximum gas “allowables” for each unit to assure mineral owners fair and balanced production over time amongst the various units. Inept operators would be subject to removal with undeveloped portions of units possibly released to a new operator. (the “developed” portion of a shale unit would be defined as that portion actually being drained by an existing well or wells)
*** the idea behind the above is that when a unit’s production became deficient in relation to surrounding units the operator would be required to drill another well in the undeveloped portion of the unit, or release the undeveloped portion back to the mineral owners of that unit***
e) Encourage drilling of multiple wells from a single surface “pad.”
f) Require written approval from the affected surface owners for the design and location of every specific surface pad serving a compulsory Haynesville Shale unit.
And also request he:
7) Require surface owners affected by well locations to be considered “interested parties” and be notified in writing of applications and hearings for units and wells; and, if not otherwise and specifically contractually agreed to, compensated with fair market value of land taken by oil and gas exploration. Oklahoma has a similar law.
8) Require all tracts “force pooled” into compulsory units, whether leased or not, be automatically subjected to a sub-surface servitude that may be exploited by the operator of the unit with the drilling of directional or horizontal wells to produce the unitized zone.
9) Allow any mineral owner owning the maximum area which may be efficiently and economically drained by one well in a conventional, non-shale field the opportunity to drill this tract under Title 30:9 without threat of unitization with other tracts (that could make it uneconomical for him to develop his tract).
10) Ensure that no drilling unit under Title 30:9 be allowed to produce more than its “just and equitable” share of the pool.
11) Enforce the Office’s statutory obligation to prevent excessive surface loss by setting guidelines which limit well pad densities in unspoiled natural areas and in areas already suffering from high well densities.
The solution, as I see it, is for Governor Jindal to:
1) Make a formal declaration that the state has made a serious error in allowing the drilling of “alternate wells” within drilling units.
2) Reset the “allowable” for each drilling unit as the production capability of one well.
3) Require in writing immediate plugging and abandonment of alternate wells in drilling units unless they are approved in writing by the affected surface owners and the mineral owners within a particular drilling unit. Mineral leases and surface use agreements would be subject, in some cases, to renegotiation.
4) If no agreement is reached and the above plugging occurs, declare those drilling units invalid at that point in time when the first alternate well was approved.
5) Prosecute/penalize the operating companies who have violated this law on drilling units.
6) Enact a new type of compulsory unit (not a Title 30:9 "drilling unit") specifically for the Haynesville Shale that will:
a) Provide equal protection for all property owners.
b) Provide for 640 acre units corresponding to sections.
c) Require a unit development plan from the operating company assuring that the unit be fully developed within a reasonable time frame with multiple wells (and as market demand allows). Operators would be able to amend the plan in subsequent hearings as additional geologic evidence from well histories, seismic, etc. became available.
d) Set minimum and maximum gas “allowables” for each unit to assure mineral owners fair and balanced production over time amongst the various units. Inept operators would be subject to removal with undeveloped portions of units possibly released to a new operator. (the “developed” portion of a shale unit would be defined as that portion actually being drained by an existing well or wells)
*** the idea behind the above is that when a unit’s production became deficient in relation to surrounding units the operator would be required to drill another well in the undeveloped portion of the unit, or release the undeveloped portion back to the mineral owners of that unit***
e) Encourage drilling of multiple wells from a single surface “pad.”
f) Require written approval from the affected surface owners for the design and location of every specific surface pad serving a compulsory Haynesville Shale unit.
And also request he:
7) Require surface owners affected by well locations to be considered “interested parties” and be notified in writing of applications and hearings for units and wells; and, if not otherwise and specifically contractually agreed to, compensated with fair market value of land taken by oil and gas exploration. Oklahoma has a similar law.
8) Require all tracts “force pooled” into compulsory units, whether leased or not, be automatically subjected to a sub-surface servitude that may be exploited by the operator of the unit with the drilling of directional or horizontal wells to produce the unitized zone.
9) Allow any mineral owner owning the maximum area which may be efficiently and economically drained by one well in a conventional, non-shale field the opportunity to drill this tract under Title 30:9 without threat of unitization with other tracts (that could make it uneconomical for him to develop his tract).
10) Ensure that no drilling unit under Title 30:9 be allowed to produce more than its “just and equitable” share of the pool.
11) Enforce the Office’s statutory obligation to prevent excessive surface loss by setting guidelines which limit well pad densities in unspoiled natural areas and in areas already suffering from high well densities.
Views: 85
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Replies to This Discussion
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Permalink Reply by Randy on
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Andrew, a few of the things you say have merit.
Many of them I don't agree with. For instance, I don't believe that if someone enters into a valid lease with an operator, that someone should make them release it for any reason. As long as it's valid. Everyone seems to be wanting to invalidate contracts lately. First Congress, now you.
Same things with forcing people to renegotiate surface agreements.
I don't quite understand why you want to make it where 640 acre units have to run along section lines. That could make it very difficult in some areas to have an area to drill. Forcing the operator to put drill sites outside of the unit and pay for expensive sub-surface easements.
You state they should begin "assuring that the unit be fully developed within a reasonable time frame with multiple wells (and as market demand allows)." "as market demand allows" is a little like "in paying quantities". The government doesn't need to run banks or production companies. I do agree, though, if you want a continuous drilling clause, feel free to negotiate one. Plenty of landowners have them.
Just some thoughts. -R
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Permalink Reply by Andrew Walker on
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Randy: Your points were actually addressed a long time ago. Some are not aware of the history of forced-pooling in our state. When the Commissioner of Conservation was first given the power to establish compulsory drilling units in 1940 there arose serious conflicts between his orders and the various lease contracts in these units. This resulted in fierce court battles. When in conflict, which should rule - the valid lease contract or the Commissioner's order? The Louisiana Supreme Court ruled that private contractual rights must yield to a proper exercise of the police power of the state. I am trying to develop a plan that would meet that "proper exercise" criteria.
Although I'm not stuck on the 640 acre units along section lines, I simply suggested that since that is how the vast majority of Haynesville units are drawn to date. The important point is that there is fair and balanced development of these units over time. For example, where there is limited market demand and pipeline capacity it would be unethical to allow one unit to be developed with eight wells right off the bat when surrounding units are undeveloped...
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Permalink Reply by sesport on -
Andrew - re. #7 I agree this is needed. Suggestion ... clearly define "surface owners affected" with a linear measurement, possibly by stating "within x measure radius."
re. #11 I agree again about limiting well pad densities. My suggestion again would be to clearly define the number of wells in relation to perhaps linear measure, acreage ... something.
If someone else can contribute more fair and/or accurate measure, feel free to jump in here.
Best regards, AW - sesport :0)
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Permalink Reply by Andrew Walker on
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Linear measurement - I like that approach. Anyone have any specific distance recommendations?
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Permalink Reply by Grillin' - MmmMmm on
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Andrew:
HS wells have a very limited drainage area. It is doubtful that there will be a lot of drainage from one unit to the next. So why on earth are you so dang interested in trying to "equalize" the rate of production across units? If one unit is fully drilled up and the other only has one well in it, why is that an issue for the regulatory groups? Eventually, the other unit will be developed. If its about "fairness", well life ain't fair! But the underdeveloped unit owners aren't losing any gas to drainage but the developed unit. The gas is still there. It just might take longer to get it out of the ground.
"Fairness" was the goal of Marx. It doesn't work!
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Permalink Reply by Randy on
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Are you saying that the government should choose for the operators where they have to drill their wells?
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Permalink Reply by Randy on
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Yes, but by requiring an operator to develop units 'fairly' that essentially says they are being instructed where to drill additional wells. right?
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Permalink Reply by Randy on
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Because their idea of 'fair' may not coincide with the geologists. I still believe if you are spending millions of dollars you get to decide where you're going to spend it.
Not to mention they don't have the "we give you big tax breaks" stick much longer.
Do you feel like O&G needs to be nationalized? This would seem to be the first step.
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Permalink Reply by Randy on
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While I do believe that the fair comes in October, and takes all my money... I understand peoples need to feel like they've been treated the same as everyone else, however, they AREN'T. I'll grant, if all the contributing factors are the same, they should be treated the same. But that is almost never the case. You have terrain to consider, infrastructure, geologic strata, how amenable landowners are, provisions built into lease/row/surface use agreements that may make one area less desirable than another, the list goes on.
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Permalink Reply by Grillin' - MmmMmm on
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I see this as an attempt to tell companies WHEN to drill wells. That's the part I don't like. The Where to drill is already part of the law and has some tie-in to efficient drainage and property protection from excessive drainage.
The WHEN to drill is more problematic. If leases are being drained because of developement next door outpacing their development, then I would wholeheartedly agree that the LOC could dictate that additional wells be drilled quickly. I'm okay with that. But where drainage is not occurring, I do not like government telling a company they have to go out and drill more wells on a certain time schedule. That's just wrong in my book. Why wouldn't the government just decide to tell us that we have to all go out and buy a new car every 3 years, because it would be "fair" for all those automakers?
The lease is the contract that covers what an operator must do to develop and protect the minerals. If it doesn't include a timeliness clause, and the operator is complying with the letter of the contract, then I'm sorry, I can't see forcing folks to drill wells faster/slower.
Sorry to get the fairness/marxism discussion going. Didn't mean to imply that all fairness is attributable to marxism. Just that marxism had a stated goal of fairness, although I'd agree it really wasn't at the heart of the matter; just something to "hook" the unwashed masses! So, marxism's leaders embraced fairness as a selling tool; that isn't the same as saying all fairness is marxism. In the end, life ain't fair. At least in our earthly view. In the long run, the Big Guy's Plan is very fair!
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Permalink Reply by Bobi Carr ("parker") on
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Mmmarkkk,
Admittedly, I've only skimmed this article, but the main thing that screamed at me was the fact that development doesn't occur equally DEPENDENT upon what the lease terms are.
I put myself in the O&G shoes and decide, do I drill a section that has a 1/6th royalty or do I drill a section that has a 1/4th royalty. Well, Duh?
If the unit with 1/4th royalty doesn't get drilled fast enough to their liking, they could renegotiate to make their unit more attractive.
I KNOW THAT I HAVE OVERSIMPLIFIED THINGS AND THERE MAY BE OTHER ISSUES. (This was just the first thought that occurred to me when I looked over the information. I don't think we can ever legislate fairness. I think once you have set parameters you do your best to work within those - unless they are completely out of whack.)
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Permalink Reply by Grillin' - MmmMmm on
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But KB, all of the language in the unit laws/orders have to do with fairness in terms of drainage. Again, my whole point is that if there is no drainage occurring, why must the LOC get involved? Again, telling a company they have to drill faster (or slower for that matter) is just a horrible idea unless the mineral owners are losing reserves via drainage across the lease line. If that isn't occurring, why should gov't stick their big, inefficient nose in it? Almost assuredly, where gov't gets involved, inefficiency creeps in.
Great news about your niece! Congrat's. -
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