Replies to This Discussion

Permalink Reply by Andrew on August 8, 2012 at 8:49

What state are you in? That will determine what your rights are.

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Permalink Reply by drillbit on August 8, 2012 at 9:51

Andrew....LDOC is the abbreviation for "Louisiana Department of Conservation". Sorry.

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Permalink Reply by Andrew on August 8, 2012 at 9:51

I'm guessing "LDOC" means Louisiana Department of Conservation, meaning you are in Louisiana.

First, in any state, this appears to be a strange situation that I've never heard of happening. If you are in a unit with the deeper well then you (or your lessee) are entitled to share in the costs and revenues from that unit well. What's curious to me is that they released your lease as to a well bore that is not on your property. If the well bore isn't through your tract then they haven't released anything because you didn't lease that to them in the first place.

in order to accomplish what you suggest they did, which is effectively make you a WI owner, it seems that they should have released your acreage as to that DEPTH. Even then, I don't believe they can "retroactively" make you a WI owner 2.5 months after the well was spud. Because this isn't a situation I've heard of happening I can't say for sure, but it seems logical to me that doing so would free you from your liability of putting up the costs prior to the date of the ACTUAL release. Even if not, they would have apparently failed to comply with Louisiana's laws requiring notice to be given before forced pooling.

Of course, all of the above is just my thoughts on the situation, and isn't legal advice. This is likely a very good situation for an attorney to handle, especially an experienced oil and gas attorney.

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Permalink Reply by drillbit on August 8, 2012 at 10:19

Andrew - your statement "If the well bore isn't through your tract then they haven't released anything because you didn't lease that to them in the first place" I believe is incorrect.  A reason for unitization is to protect the correlative rights of property owners. All mineral owners in a unit share in unit production.

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Permalink Reply by Andrew on August 8, 2012 at 11:01

It is correct that your interests are pooled with the others in your unit, but if the well bore is not on your tract then you do not own the rights to that bore. Your lessee has the right to pool your acreage together with other tracts within your unit to share in the costs and production. But again, your lease does not cover the geographic boundaries of what they released, so they have in effect released nothing. It seems far more likely that would release your rights as to the depth from which that well bore is producing. Do you have the exact language from the release?

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Permalink Reply by drillbit on August 8, 2012 at 16:56

Andrew…as stated in my original post, my lease was a partial depth lease…that is, I was leased down to a certain depth with all production below that depth being reserved for me. The new unit well produces from perforations in the leased depths and the reserved depths. The partial release relinquished lessee interest in the leased depths of new well's wellbore. 

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Permalink Reply by Andrew on August 8, 2012 at 19:05

Ok that makes sense now. I wasn't grasping the multiple perforations. If the release relinquishes your lease as to certain depths, then they have essentially converted you into a WI owner.

However, I am highly suspicious of the timing. If you were an unleased mineral owner or Lessee you would be entitled to notice of the unit hearing, the pooling order, the approximate drilling and completion costs, and given the opportunity to elect whether you wanted to participate in the well. This all has to happen months before the well is spud. Thus, it isn't likely to fly if your Lessee releases your rights retroactively after the well was already spud - this would effectively deny you your right to elect to participate.

If a WI owner could free himself of liability from paying royalties by releasing a lease AFTER drilling commenced, then operators would simply start releasing interests in every well that was marginal in order to increase loss recovery. It makes no sense.

This is why I say consulting a lawyer may be a wise move. If I were in your position I would want to start making demands and sending notices to start the ball rolling on getting 8/8ths of my portion without having to put up those costs, at least those incurred before the actual date of the release. That seems like the logical outcome to your situation.

Sorry to hear about your unfortunate situation, and good luck.

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Permalink Reply by jkw3 on August 9, 2012 at 6:57

I am assuming that your lessee was not the Operator of the well.  It would make no sense for the Operator to release your lease as to the well-bore since the Operator will have to pay the well costs associated with the unleased mineral interests.

 

Did your lessee elect to participate in the well or non-consent the well?  Was the lessee subject to an Operating Agreement?  A standard Operating Agreement provides that the parties participating in the well assume the non-consenting party's interest would pay the non-consenting party's royalties.  Again, if your lessee was subject to an Operating Agreement it would make no sense to release leasehold rights in the wellbore as the lessee is responsible for no out-ot-pocket royalties during the non-consent period under the Operatin Agreement.  

 

Because of the requirement that a non-consenting working interest owner pay its royalty owners out of their own pocket during the period that the operator is recovering costs of drilling and completing wells and any risk fee charge allowed under LRS30:10 (before the amendments to 30:10 effective August 1, 2012), this tactic has been discussed as a way of avoiding paying out-of-pocket royalties by giving up all rights in a wellbore while retaining the right to participate in future wells (and existing wells in which the working owner had previously particiapted), but this is the first I've heard of any lessee actually doing it.  The main impetus to amending LRS 30:10 this last legislative session was to "protect" smaller working interest owners who could not keep up with drilling costs of the expensive Haynesville wells.  By making the Operator pay the non-consenting working interest owner's royalty to that working interest owner, it eliminated the requirement that these non-consenting working interest owners pay royalties out of their own pocket when they were receiving no revenues from the Operator.

 

It is a questionable practice, but it may be legal.  Though the language of the lease allows release of partial interest for any reason, the timing of the release here is suspect. I see no problem if released prior to commencement  the well operations. Under the old LRS 30:10 ownership for notice purposes was determined at the time of the well proposal.  If valid you are an unleased mineral owner and subject to only recovery of well costs, but not any risk fee penalties. 

 

There is discussion in this thread about not being an unleased mineral owner and not subject to recovery of the costs of drilling and completing the well.  That would unfairly penalize the Operator who is an innocent party here.  The party you have a contractual relationship with is your lessee, and that is the party with which you must deal if you want to challenge the partial release.  Also it is rare for an Operator to propose wells to unleased mineral owners unless those owners have a substantial interest in the unit.

 

If you want to participate as a working interest owner I'm almost certain that most Operators will accept your check for your proportionate share of the cost of drilling, completing and operating the well to this point and pay your  proportionate revenue in the well. 

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Permalink Reply by drillbit on August 9, 2012 at 7:15

My lessee is definitely the operator of the well.

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Permalink Reply by jkw3 on August 9, 2012 at 7:21

May I ask who is your lessee/Operator and where the well is located?

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Permalink Reply by drillbit on August 9, 2012 at 7:51

I don't want to reveal this information right now....my situation gets a lot wilder and involves the Louisiana Department of Conservation and apparent misrepresentations to me by the lessee. The outcome of my dealings with the lessee may hinge on whether the wellbore release will hold up...my objective is to determine if it will hold up. I really appreciate your input.

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Permalink Reply by drillbit on August 9, 2012 at 7:29

The lessee wrote me saying it opted to exercise its rights to execute and file of record the Release, after failed attempts to reach an amicable solution with me related the ownership variance between the Hosston and Cotton Valley Formations resulting from the depth restriction contained in the Lease. The "amicable solution" was either for me to lease my reserved deep rights, purchase the existing lease back from the lessee, or sign and AFE to become a participating working interest owner.

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