Replies to This Discussion

Permalink Reply by Grillin' - MmmMmm on April 6, 2009 at 10:00

Workover costs are like drilling costs: once you spend it, the well can operate profitably. Normally, I wouldn't consider it an ongoing cost. Now there are some folks that can try to abuse that.

Note that the leases don't say how much money must be made, just that it is paying quantities. $1 more than expenses is paying quantities. I don't see how the magnitude of paying quantities should come into play. If you tried, it would have to be adjusted every so often for oil/gas prices going up or down and/or operating expenses going up or down.

Write up a lease however you want, that's the landowner/mineral owner's perogative but don't change the ones that are written.

I feel that non-recurring expenses should be left out. If I drill a $10MM well and only get a 1 MMCF/day well, it is generally accepted that the well will never pay out. But at 1 MMCF/day, the well is making some serious money. But since it will never pay out, are we saying that's not "in paying quantities"? Workover are the same way.

If my pumper charges me $20/day and I can make 100 MCF/day (probably about $200/day in profit more or less, isn't that paying quantities? And who would set the limits? Maybe you could define it in the lease, that paying quantities means $500/day after operating expenses. That works out great until gas prices go to $15/mcf and the breakeven point is a really low trickle of gas or oil.

Slippery slope.

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Permalink Reply by Greedy Landowner on April 5, 2009 at 23:13

After reading your website I find myself afraid. I'm just not quite sure what it is I'm afraid of. It sounds like you have been hired by a landowner or landowners who aren't happy with the provisions of their leases. It also sounds as if they don't have a snowball's chance in a court, which is why we now want to change the system. Is this the case?

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Permalink Reply by Andrew Walker on April 6, 2009 at 4:41

Greedy Landowner:

No this is not the case. I have not been hired by any landowner. Although I am helping several landowners fight for their property rights there is never a charge for my services. I also have my own tracts scattered around Caddo, DeSoto, Natchitoches, Bienville, and Red River parishes. I'm fighting for "equal protection" as is guaranteed by our state and federal constitution. Most people don't realize it, but from 1940 to the mid 1990's the Office of Conservation worked diligently to balance production among the various units in each particular field. This is, by the way, required by state law. Today, however, one Haynesville unit may have multiple Haynesville wells while the unit next door is undeveloped. With limited rig availability and market demand this is grossly unfair to those waiting for their unit to be developed. This scenario would never have been allowed in previous decades. At any rate, I'm fighting for all the folks who are and about to be discriminated against. Why don't you join me and take a few minutes to write Jindal. Give him your views. This is a window of opportunity we may not have again...Please Help!

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Permalink Reply by Grillin' - MmmMmm on April 6, 2009 at 10:33

Why is this unfair? Drainage radius for a HS well is pretty small, so there is no cross lease drainage to contend with. At first, I thought you were concerned with one issue: the fact that the law allows for one well per unit and the drilling of multiple wells isn't according to that statute. I thought you wanted to remedy that by allowing for multiple wells per unit...something done today but you wanted a law to codify that.

But now, I'm hearing you want "fairness" too. Like distributing across a large area proceeds from drilling or forcing drilling evenly across units, not only from a spacing perspective but a timing perspective. Ugggh. Patience is key; the prospective areas will be drilled in good time.

How about setting up one parish-wide unit; that would be "fair" as everyone in the parish would get some production over time. But then the parish next door would complain, so maybe it ought to be a statewide unit. That would be fair!

Your proposal is starting to worry me.

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Permalink Reply by Andrew Walker on April 6, 2009 at 14:59

You are exactly correct, Mmmarkkk. I'm fighting for fairness from both a spacing perspective and timing perspective. If you read my article you will remember the story about the man who had gone to the trouble to travel to Baton Rouge and who spoke before the Office of Conservation. This was in 1995, when the (illegal) drilling of multiple wells in units first began in north Louisiana. He was asking for fairness in the development of his unit. He is now 92 years old and still waiting. A neighboring unit is prospering with 21 approved Cotton Valley wells while his unit is held by minimal production from just one or two poor wells. I'm as patient as the next guy, but I don't believe even the potential for this type of discrimination should exist in compulsory unitization. He is trapped and has no recourse. This is wrong wrong wrong!!!

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Permalink Reply by sesport on April 6, 2009 at 15:08

AW - Quick question for clarification ... Are you saying that the poor CV wells are keeping this guy's unit HBP with regard to his leasing or being UMI or receiving royalties/renenuesfor HS production?

Thanks - sesport :0)

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Permalink Reply by Andrew Walker on April 6, 2009 at 15:33

The example is strictly CV. There is no HS production here yet. This is an incredible old fellow who was in WWII and involved in bombing missions against Hitler's oil reserves. Back in America his own oil & gas bearing lands are discriminated against. I've talked to him a few times and he is very very interesting. He leased many years ago and so his property is HBP. As you know it only takes one marginal well to HBP a unit.

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Permalink Reply by sesport on April 6, 2009 at 15:36

Are there other example of this that you know of, and approximately how many?

Thanks again :0)

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Permalink Reply by Andrew Walker on April 6, 2009 at 15:51

It's everywhere. Take the Caspiana Cotton Valley field, for example. I am a geologist and can tell you that the reservoir characteristics are the same for many many square miles...yet the development of units is extremely unbalanced. Companies drill more wells where they have better lease terms and it is terribly unfair to both surface owners and mineral owners who are caught in compulsory unitization. As I said earlier, the Office of Conservation used to work diligently to balance production between units as much as reasonably practical. This is their duty and they have dropped the ball.

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Permalink Reply by Andrew Walker on April 6, 2009 at 15:55

Mr. Krow:

Please take time to read the article and you will understand. I am not proposing one well per unit for the Haynesville. I am proposing a new law for this massive, unique shale play that will allow multi-well units, but with additional provisions to balance production between units and provide "equal protection."

I wish I could chat with you guys more, but it's bedtime for bonzo...good night!

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Permalink Reply by Andrew Walker on April 6, 2009 at 15:39

Mr Krow: I may have to buy an ad here! The billboard at Bert Kouns/Youree is strategically located. In addition to being the busiest intersection in the city it near the Hamel's park Haynesville well where everyone is squabbling about what unit size to use...I'm trying to educate them. As far as your question on how to set up units it is all explained in my article. A company would be required to submit a development plan for their unit when it is applied for. They would be able to amend the plan in later hearings as additional geological, seismic evidence etc became available. They would have to keep their unit competitive with neighboring units. If their unit became relatively deficient in production they would have to drill or release the undeveloped portions of that unit.

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Permalink Reply by Andrew Walker on April 6, 2009 at 15:40

I am, by the way, proposing 640 acre units that would allow for multiple wells over time as market demand allows

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