Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2018 at 12:03

Jeanie, have no fear as rigs do not equate to royalty.  All the wells currently drilled and completed will pay royalties, eventually.  The number of new wells and their associated royalty revenue stream will of course be less.  At this time RR gets a better return on their dollar in the Marcellus than they do in N LA.  So it is understandable for them to shift focus.

What is less understandable is that well results were good and consistent before Range took over.  The company bragged about how expert they were on drilling these kinds of wells and then went out and changed the well designs that had been used successfully by Wildhorse and MRD.  Lo and behold the next report we get is that Range's new wells are not performing up to expectations.  And now we hear the same with the statement that they will go down to one rig.

So is Range less competent drilling and completing wells in the Terryville Complex? Or, is their statements a reflection of poor results to date in their Jackson Parish wells?  Or, both?  I'm too busy with the Haynesville Shale resurgence to invest any time trying to find out but I will say that Range really put their foot in their mouths claiming superior drilling and completion know how and then proceeding to prove otherwise.  I am very wary of Range.

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Permalink Reply by Jeanie Fallin Simmering on March 3, 2018 at 9:29

Thank you, Skip. I really hope they sell to another company. In your opinion, is that a probability. Wouldn't they want to get rid of it?

Thank you for your time and willingness to share your expertise.

Jeanie

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Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2018 at 9:33

Jeanie, I don't know if any major or mid-major energy company would want it considering the current state of affairs.  They paid a steep price to acquire the assets, $4.4B.  I guess they might find a buyer at a steep discount to that.

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Permalink Reply by Jeanie Fallin Simmering on March 3, 2018 at 10:11

Thank you. Live and learn!

Jeanie

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Permalink Reply by shelby on March 3, 2018 at 4:58

Wow, the wonders never cease with the Oil and Gas companies. I think mineral owners are way beyond giving "those guys" the benefit of the doubt anymore. With no class action recourse, no "in-house" attorneys on our pay-rolls, or, genius status for ordinary mineral owners like me; what are we to do? Are there any governmental agencies that will champion the "little guy" in situations like this and others with big O&G?  

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Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2018 at 5:35

Regulators with a little push/help may decide to enforce existing regulations a little tighter when something obvious is pointed out.  That's the tact I take and find that it works more often than not.  Unfortunately the issues with Range and other operators that we regularly discuss are questions of legality which are typically litigated, if not settled, in court.  The more direct route to changing the laws that regulate the actions of O&G companies is the legislature.  The industry has invested much in influencing enough legislators to fend off the vast majority of attempts to change how they do business.  No, the state AG office is not a means to address these issues.  At least the AG has declined previous requests to look into or address these issues.  This leaves the courts and in fact what has changed most over time is case law.  It is difficult to prevail against the industry at the appellate level.  O&G will always attempt to avoid state court in favor of federal court where the judges are very "business friendly".  If they have to litigate in state court, they lose at the district court level in a surprising number of cases.  However they then go to the appeals court.  The Second Circuit Court of Appeals here in Shreveport hears a lot of those appeals and has a history of coming down on the side of O&G more often than not.  It should be noted that all appeals court seats in Louisiana are elected.  O&G knows this and supports candidates for the bench that they think will be friendly toward their interests.  With the most recent 2nd Circuit election results, that chamber now has zero judges with any appreciable background in O&G law.  Louisiana voters could conceivably elect judges that were friendly to private land and mineral owners.  They just don't.  Too little knowledge, too much apathy.  In politics there is a saying: If you're not at the table, you're probably on the menu.

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Permalink Reply by Bob Zimmerman on March 3, 2018 at 7:29

The Texas Supreme Court has correctly ruled post-production costs beyond the wellhead cannot be assessed to royalty owners. Louisiana has always taken the opposite track, i.e. those costs can be assessed and paid for by the lessor out of the royalty stream.  It makes one wonder, what will Louisiana courts if confronted with the same arguments? 

As always, the devil is in the details:

https://agrilife.org/texasaglaw/2015/07/13/texas-supreme-court-find...

http://www.txcourts.gov/media/996496/140302.pdf

http://www.steptoe-johnson.com/sites/default/files/Royalty_Article-...

https://www.emenswolperlaw.com/post-production-costs-protecting-lan...

https://psmag.com/environment/oil-gas-drillers-avoid-paying-royalti...

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Permalink Reply by Skip Peel - Mineral Consultant on March 3, 2018 at 8:04

Your statement regarding Louisiana is a little too broad, Bod.  The specific lease language is critical.  I know mineral lessors with no cost royalty clauses that would stand up in court.  The operating companies grudgingly comply when pressed.  But not all no cost royalty clauses are created equal.  And operating companies will deny demands and litigate when the language provides them room to do so.

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Permalink Reply by Bob Zimmerman on March 6, 2018 at 14:22

Skip wrote:

< I know mineral lessors with no cost royalty clauses that would stand up in court>>>

I think that was the gist of it in Hyder, that properly written, a royalty could be had without any post-production expenses downstream of the wellhead save severance taxes. 

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Permalink Reply by Andrew on March 9, 2018 at 14:23

Bob,

In Texas, royalties are subject to post-production costs. In fact, even if a lease prohibits all "deductions from the value of the Lessor's royalty by reason of any" post-production costs, the Texas Supreme Court has ruled that post-production costs can still be charged, which was the holding in Heritage Resources, Inc. v. NationsBank. 

The Texas Supreme Court did side with the royalty owner in the Hyder case, but that case (like all other post-production cases) turned on the specific language in the Hyder's lease. The Hyder case did not establish any precedent that royalties in Texas are presumed to be cost-free.

Louisiana courts have followed Texas' example, and have long held that royalties are generally subject to post-production costs, unless the lease itself says otherwise. LA Courts have generally adopted the same reasons as Texas courts in charging post-production costs to royalty owners, but LA does not have any standing precedent adopting the Heritage Resources, Inc. v. NationsBank decision. 

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Permalink Reply by Skip Peel - Mineral Consultant on March 6, 2018 at 5:07

Thanks, LN.  I wish all our members who have missing unit surveys would be as proactive as you are.  It is clear that the state is responding to your request for assistance.  I expect they will do the same for any mineral lessor or UMI that goes through channels and request assistance in an acceptable and respectful manner.

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