Replies to This Discussion

Permalink Reply by Henry on September 20, 2010 at 11:52

In the movie, Haynesville, Kassi got hosed by a lease from the 1950s that did not have a horizontal Pugh clause. The lease covered multiple, separate tracts of land. At least one of those tracts had a producing well. By the terms of that lease, with no horizontal Pugh clause, all of the land was HBP.

Time went by, land was sold, and everyone "forgot" that these other sections were HBP. It was not until a detailed title search on the minerals was done, that people realized that Kassi's land might be HBP by this old lease.

Another good idea for lessors -- if you have land in different sections, don't include all the tracts on the same lease. Write a separate lease for each tract.

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Permalink Reply by reallyoldguy on September 20, 2010 at 12:15

Great advice, Henry! I forgot about Kassi and the Pugh clause issue. So thats the reason Chesapeake walked on the draft?

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Permalink Reply by Two Dogs, Pirate on September 20, 2010 at 12:47

An experienced Landman wouldn't have made that mistake unless the company told him to get ink before proving mineral title. Some companies are tight with their money and all that does is create bad feelings between Lessor and Lessee. The Landman needs to tell the landowner that the lease will only be valid when title is proven true in Lessors favor. It doesn't take much time to go on Sonris and look for producing wells some can get complicated.

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Permalink Reply by Skip Peel - Mineral Consultant on September 20, 2010 at 13:22

In general, preliminary title review for the purpose of making lease offers is cursory. Extensive title review is only performed prior to paying out revenues from production. It makes no business sense to perform an exhaustive title search before the productive nature of a well is known. Thorough title research and curative by experienced professionals is very expensive. The approach used by all companies in building an initial lease block is to lease any party who MAY have an ownership interest based on a quick search of public records. It is not unusual for a lessor to find out after the fact that they hold no ownership interest or a lesser ownership interest in minerals under a lease. Furthermore, leases most often utilize a legal property description for an original or master tract. Lessors often think that if the lease states that it covers X acres, that is their ownership interest. The truth is that the company representative offering the lease thinks that there is some likelihood that the lessor may own some portion of X, a half, a quarter, a tenth, etc. The actual ownership will only be defined upon the completion of a full title review and issuance of a title opinion which will be used to create a Division Order upon which revenues will be paid. The obvious potential problems inherent in this approach were exacerbated by the rush to lease the Haynesville Shale Play.

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Permalink Reply by The_Baron on September 21, 2010 at 3:11

Lets not forget that in the boom many of the biggies were running inexperianced landmen, some working straight off the assessors rolls.

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Permalink Reply by Skip Peel - Mineral Consultant on September 21, 2010 at 3:18

I'm sure more than a few old hands and upper level land managers warned of the future problems inherent with leasing off tax rolls. Their superiors made the decision to go forward and deal with the problems later. The rush was on. For some the bad publicity and distrust created amongst the public will linger for many years.

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Permalink Reply by Henry on September 20, 2010 at 13:25

ROG,
That is the reason CHK walked on some of Kassi's group. On others in her group, they walked for no reason at all.

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Permalink Reply by The_Baron on September 21, 2010 at 3:13

"So thats the reason Chesapeake walked on the draft?"

CHK didn't walk per say, they found that the land was already subject to lease, therefore there was no new lease to buy. Lets not forget that they still owned their minerals and will get royalties.

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Permalink Reply by Skip Peel - Mineral Consultant on September 21, 2010 at 3:26

I agree with The Baron. And that misrepresentation is one of the few flaws in Haynesville: The Move. The members of the Rambin Farm group affected by the old lease did not loose the rights to their minerals. And the concept of HBP (Held By Production) is not some arcane Louisiana mineral law. It is one of the oldest and most universally applicable laws governing mineral development. The old lease was an unfortunate situation which will hopefully be resolved in favor of the mineral owners in a court of law. Chesapeake does however bare responsibility for the other members of Kassi's group not affected by the old lease whose letter agreements were not honored.

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Permalink Reply by gardnhoser on September 21, 2010 at 3:36

It should be mentioned that many people greatly benefited from the initial lease rush as they signed leases with no warranty of title clauses. They were paid large sums of money for minerals they did not own or minerals that were HBP.

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Permalink Reply by Skip Peel - Mineral Consultant on September 21, 2010 at 3:59

I don't know about "many". There were certainly "some". In either case, it's likely not a case of deception on the part of lessors just the willingness of the industry to employ business practices that have risks. The industry prides itself on "assessing and managing" risk. Then there's Mr. Creamer. LOL!

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