Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2014 at 10:42

Under LA law Unlerased Mineral Interests do not pay Risk Penalties (200%). UMI's are subject only to their proportional share of well cost paid out of production (100%).

http://www.gohaynesvilleshale.com/UMI-Basics

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Permalink Reply by obed w odom on July 25, 2014 at 11:43

And, as you said earlier, Skip, even if Mr. Funk were still leased to the nonconsenting party, he should not have to pay any penalty or even well costs, as I understand it, in contrast to his nonconsenting lessee.

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Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2014 at 11:54

That would be correct, obed. Since James has a release filed of record, he is a UMI. 

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Permalink Reply by Skip Peel - Mineral Consultant on July 25, 2014 at 5:01

Nice work, Two Dogs.  Agree something is fishy about this deal.

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Permalink Reply by Spring Branch,mineral owner on July 26, 2014 at 6:36

Sounds to me like Mr. Funk requested a Release, which was granted and backdated before the well was drilled, at which point rather than buy a lease from him, EnCana decided, for reasons of their own, to leave Mr, Funk as an UMI.  This actually happened to me with Chesapeake as Operator and Petrohawk as my lessee in Desoto Parish.  Petrohawk decided they would rather not be a non-operating working interest owner and have to deal with Chesapeake in the section, so they gave me a Release of my lease.  Chesapeake then decided (because the well is fairly mediocre, ) to leave me and my partners as a UMI.  It doesn't appear the well will ever pay out .( Chesapeake will make sure of that),. I've learned to be careful what you wish for.

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Permalink Reply by Two Dogs, Pirate on July 26, 2014 at 10:29

The well was completed on 7-16-11 in Sec 19-9N-11W the release was executed  on 8-21-2013 but effective 9-16-09 a day after the effective date on the lease.

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Permalink Reply by Keith Mauck (Site Publisher) on July 28, 2014 at 2:15

http://www.gohaynesvilleshale.com/group/sabineparishnetwork

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Permalink Reply by shorty Townsend on July 28, 2014 at 3:57

Guys this sounds like the following scenario:  When a Lessee decides to go non consent on a well that gives the operator a vested interest (sounds like 200% in this case - prior to the most recent change of RS 30:10).  If the non consenting lessee releases their interest that doesn't change the vested interest of the operator.  In this scenario Mr. Funk's only claim is against the original lessee.  When a lessee goes non consent it doesn't relieve them of their obligation to pay royalty to their lessor and even if they have released the lease Mr. Funk still has a claim since he is in a 200% penalty scenario.

On the positive side the most recent change to RS 30:10 helps folks in Mr. Funk's situation.  Given some time hopefully the operator will want to drill alternate wells in this section and then Mr. Funk will be in a position to negotiate a good deal and possibly square up with the operator on royalties that he missed out on.

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Permalink Reply by Skip Peel - Mineral Consultant on July 28, 2014 at 4:20

Mr. Funk need not wait to negotiate a lease.  He has been able to do so since he received his release and it was filed of record.  He might have a better position to negotiate when Encana permits alternate unit wells but that is unknowable from the facts provided.  If the individual tracts cited are small it is possible he would do better leasing now if ECA is amendable.  The days of big Haynesville lease bonuses are history.  The royalty revenue should be the focus, along with the basic beneficial and protective lease terms we often discuss. A quarter royalty and alternate unit well production is the best scenario for income over the fife of the unit production.

Like Two Dogs, my concern is for the co-owners who did not receive a release.

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Permalink Reply by 1kw6x71km1v37 on July 28, 2014 at 4:37

<A quarter royalty and alternate unit well production is the best scenario for income over the life of the unit production>>>

Really? My banker will never buy into that, LOL.

Mr. Funk is getting ripped off in all probability. Half-a-million dollars paid out for tangible and intangible well costs and he does not have a revenue stream off the well in question raises a big red flag, namely while the statute quoted by Skip Peel does indeed protect the UMI, one may well have to go to court to get that protection. A ten-year payout format could turn out to include the 100% risk charge in addition legitimate costs.

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Permalink Reply by Skip Peel - Mineral Consultant on July 28, 2014 at 4:51

Yes, really.  Mr. Funk is a UMI and is being treated as such by Encana.  He states as much early in the discussion thread.  "They send me the quarterly reports on production and expense but does not look good for us."  That is what the law requires, no more..no less.  Encana is unlikely to approach Mr. Funk with a lease offer at this time but he is free to contact them.  Any recourse he would have would be against his lessee, not against Encana.

The incidence of UMI's with minerals in Haynesville Shale units with unit wells that have not paid out is quite common.  Regardless of how a mineral owner got in that predicament, and there are a number of ways that has happened, they should signal a willingness to lease and attempt to get in pay as early as possible.  The lessors in all those non-commercial Haynesville wells have been receiving royalty on production since they had a valid lease and the well was turned to sales.  The operator may not have recovered their well cost but the lessors are getting paid.

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Permalink Reply by 1kw6x71km1v37 on July 28, 2014 at 6:23

Seems what Mr. Funk may be missing the most is a notarized affidavit of the cost of drilling, completing and equipping the well in question as required by LRS 30:103.1.

The UMI must initiate the above response by providing the operator with a request for such and giving his name and address. It's all right here:

http://www.legis.state.la.us/lss/lss.asp?doc=86910

Until he knows how much he owes, we are just shooting in the dark here.

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