Southwestern Energy has just mailed a huge package to all of us in the Western area of the Fayetteville Shale play. Here's how SWN describes our new opportunity:

"Our newest project in Arkansas is the Ozark Highlands Unit, which contains approximately 185,000 acres within the Ozark National Forest in Conway, Johnson, Pope, and Van Buren counties."

The company is proposing the new unit for federal unitization. More than 86% of the planned unit area is public lands. The company is inviting private mineral lease holders to sign a contract to join the new unit and allow the company to explore, develop, and operate under a comprehensive plan of development between the unit operator, the unit participants, and the Bureau of Land Management.

The company says this new unitization will allow a geologically defined area to be explored more efficiently and developed by a single designated operator. The land being unititized is mountainous, with streams and lakes. It is difficult to access some areas and impossible to drill some areas due to the terrain.

SWN says the plan will operate "pusuant to unit plan regulations 43 CFR 3180."

This will pool the entire area into a 184,600 acre unit. The company explains, "Depending on when and where wells are drilled and completed, the area "reasonably proven to be productive" or the "participating area" can include one or many sections (640 acres per section) of land. All owners of mineral rights and royalties are allocated production in proportion to their land within the participating area." The letter then gives an example of a pooling of four sections into a 2,560 acre participating unit.

The company sent me a $7 packet, signature required, containing a 13 page legal brief filed with the Bureau of Land Management, a giant map of the area being unitized (153,766 acres of public land under lease, 5,489 acres of public land unleased, 202 acres of state lands, and 25,144 acres of private land like ours), a two page description of the new Ozark Highlands Unit, 5 pages of frequently asked questions with answers, one page with the description of our lands, a two page letter from the Bureau of Land Management accepting the SWN unitization plan, 6 contracts (identical) to join our land into the new Ozark Highlands Unit, and a two page letter to Anna and I with instructions on joining. We've since submitted a couple of questions by email and gotten a couple of pages of reply.

The company is giving a committment in writing to 11 new exploratory wells in the next three years.

Our analysis is this: If we join, we will likely get small royalties that will build over time as the number of wells increases. In the short term, our royalties will be very diminished by the dilution of all those acres. We are more likely to see steady royalty increases over time and extending to our Sons upon our death and our grandchildren upon our Sons' deaths. If we don't sign, it becomes less likely that SWN will drill on land that is not part of their hugh unit.

Do any of you have experience with anything like this?

Do you have any advice?

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We're talking about some beautiful, pristine country up there. What will it look like when they get through with it?
We decided to sign their paperwork. Wish us well.

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