Replies to This Discussion

Permalink Reply by Steve on August 5, 2014 at 11:31

I notice that in Ms. their MSOGB is now habitually permitting units that are near 2000 acres, with as much as 2400 acres. Their August docket has over 30 such unit applications and units of 2000 acres have been being approved on a regular basis. I suspect this will have the affect of keep competing operators out , could delay development and not ultimately be in the best interest of the citizens of the State. No one has explained how units of this size benefit the State or the landowner. Would someone please explain why such large units are necessary or how that state's regulators are justifying permitting units of that size. I realize this discussion concerns Louisiana and cross unit laterals but I am concerned that what is happening in Ms. will happen in Louisiana next. Would cross unit laterals preempt any need to approve such large units in Louisiana? I hope the La. regulators will look closely at this issue of unit size and do what is necessary to protect us.

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Permalink Reply by Skip Peel - Mineral Consultant on August 5, 2014 at 11:33

Steve, please don't get the discussion off topic right out of the box.  If you wish to discuss MS unit sizes, please do so in a separate discussion thread.

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Permalink Reply by Steve on August 5, 2014 at 12:01

Sorry Skip but I thought unit size would likely be a central issue in any discussion of cross unit lateral permitting in La., particularly since the same operators who will be drilling in La. seem to favor abnormally large units over cross unit lateral permits and I expect them to want the same special treatment in La. as they are getting in Ms. In that regard my comments and concerns are not about Ms. at all actually. You said you wanted the commission to know what was on the mind of mineral owners - what is on my mind is - will cross unit laterals minimize the size of unit permits that will be granted in La. If that is off topic, I don't see it, but this is your discussion.

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Permalink Reply by Skip Peel - Mineral Consultant on August 5, 2014 at 12:14

It's difficult to know just what the commission will choose to debate or make recommendations regarding. Would you agree that your question/comment to the commission would be:  In light of the benefit of CULs to operators, would the state consider placing a maximum size of _______  acres on drilling and production units?  I'm going to cut and paste these comments so feel free to rephrase your question and add a comment about how large units should be.

Also please consider adding a little something about yourself.  For example you might end your question/comment by signing it - a Tangipahoa Parish mineral owner & lessee.  Or something similar.

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Permalink Reply by Two Dogs, Pirate on August 5, 2014 at 13:12

I don't think anything should be written into law at this point in time on Cross Unit Laterals. Horizontal drilling is still being worked on and is in the infant stages with some formations. DNR needs to go slow and let the process evolve with the technology it takes to drill longer laterals in different formations. Just take one step at a time. Look back at the Austin Chalk and the large units that are HBP today with marginal production. Halcon proposed 960 acre TMS units in Rapides Parish and I think that is fair, anything larger should be looked at long and hard, until these operators can demonstrate the ability to drill and produce the full lateral. 

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Permalink Reply by Steve on August 5, 2014 at 13:27

I think your paraphrasing of my concern should be revised a bit. I would ask:

"Please consider restricting the size of TMS units to a size no larger than that necessary to accommodate proven expectations of achievable lateral lengths for the unit."

Setting a maximum unit size is not necessary and leaves them with some discretion. Based on the facts, as they have been so far demonstrated, no operator has drilled a lateral much over 8000 ft. and the average lateral is nearer to 5000 ft., with many much shorter. All I am asking is that they either restrict unit sizes and/or allow cross unit laterals to protect the landowners from hoggish acre grabbing. You understand the concern and are better able to express it than I am. Submit it to the commission on behalf of a TMS landowner and embellish or change it as you see fit. I doubt they actually care who asked the question. I have already had the opportunity, through other much larger landowners who share my concerns about the direction unit sizes are taking, in a face to face meeting  with the La. Dept. of Natural Resources a couple months back, but, refreshing their memory  can't hurt. Thank you for considering my comments, and thank you if you decide to share my concerns with the Commission. Good luck in your solicitation of more comments.

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Permalink Reply by Skip Peel - Mineral Consultant on August 6, 2014 at 1:42

Steve, I'm not sure the HBP concern regarding large units is lessened by smaller units combined with CULs if, for example, an operator can drill a well with a lateral that lies 90% in one unit and 10% in the adjoining unit.  All mineral interests included in the unit with 10% of the perforated lateral are Held By Production with a small prorated percentage of production.  The end result is little different from those mineral interests in a large unit with a single well.  Please think about how the state could regulate CULs so that development is equalized over time for all mineral owners in a field developed using CULs.

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Permalink Reply by Steve on August 6, 2014 at 2:19

I see what you are saying but at least the operators would have to successfully place a % of the lateral in the adjoining unit and when they fall short (what usually happens) the landowners in the adjoining unit wouldn't be HPB. With the 2000 acre units they can produce from even a vertical hole or a very short lateral and still hold the entire 2000 acres. What is happening now in Ms. is they are completing short laterals(some less than 2000 ft. due to mechanical failures) but still HBP units that were approved contemplating unrealistic 10,000 ft. laterals. What I am hoping to avoid is allowing operators to hold excess acreage by building units far larger than they can access with a well's lateral. There has to be some way to  regulate CUL permits to prevent a small lateral encroachment (like the 10% you mentioned) from holding an entire adjoining unit. Maybe requiring at least 25% of the lateral be in the adjoining unit? I don't know the answer.

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Permalink Reply by Skip Peel - Mineral Consultant on August 6, 2014 at 2:25

Forget MS for this exercise.  Think how you would regulate CULs to protect the interests of LA mineral owners.  As you suggest, a minimum lateral length by percentage in a unit would be one approach.

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Permalink Reply by Steve on August 6, 2014 at 3:15

I only mentioned Ms. as an example of how landowners are getting screwed because they don't have CULs. I really don't care about Ms. at all other than I was giving all a heads up that we will be opposed by the very same people(operators) who will be applying for units in La., where they might ask for big units in La. instead of CLUs. The CLU policy we request should be focused on preventing the operators from getting their preferred alternative. That is the issue that we need to address. The operators have a lot of influence so we need to be able to counter their arguments with our own remedies. Am I wrong?

Going forward : Could they redesign units based on actual laterals after a well is drilled? This may work where the same operator owns the adjoining acreage? It could get complicated I admit. Maybe they should just limit unit size to accommodate a 8000 ft. lateral period - this gives both landowners and operators some of what they want

Permalink Reply by tc on August 6, 2014 at 1:22

My question is does the operator who apply for the CUL have to be the operator of the prior 2 units?  Is there statue/policy on this issue.  Right now there isn't that much competition for drilling units in the Haynesville, but if NG prices got to be $8, what is to stop for example Chesapeake the operator of the full unit from applying for a CUL that takes 1/2 of the unit that Exco is the operator of?

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Permalink Reply by Skip Peel - Mineral Consultant on August 6, 2014 at 1:43

Good question, tc.  Force Pooling statutes would have to be revised. 

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