Replies to This Discussion

Permalink Reply by Tom Bennett on May 7, 2011 at 16:11

Herman, I can tell you where the small operators were. They were busy telling everyone there was nothing to any talk about any wells being any good in Northern La or Southern Arkansas. You can go back and read all the propaganda back for several years.

Now they are unhappy because they must have sold themselves on the idea there was no hope for Southern Ark or norhtern La. . Oh well maybe next time.

Permalink Reply by The_Baron on May 9, 2011 at 8:04

Herman and Tom:

 

The small operators have been drilling wells in south arkansas for years. albeit it is not the fast crazy pace you see in the HA, but we have been drilling wells.

 

Any comments I have made are not propoganda, but comments based on my experiances in south arkansas. We have drilles many wildcat wells and even discovered a few new fields.

 

The small operators do not have the resources to go out and tie up tens of thousands 9or even hundreds of thousands) of acres. We typically lease anywhere from 160-1280 acres for a new prospect, and then we actually drill it.

 

So far since this Brown Dense nonsense has taken off, we have had three prospects go into the file cabniet, because we can get the leases we need. Thats a minimum of three wells that probally won't be drilled.

 

I call it nonsense because we have these large players leaseing up tremdous amounts of land across multiple counties, taking down the abstrat plants to prevent competition, and tying up these tracts with long term leases for a play that has had only three wells drilled a hundred miles from each other. None of these wells have managed to make any substantial sustained production. They call it the brown dense for a reason. There is no porosity.

Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2011 at 8:51

I believe The Baron's comments to be accurate and agree with his description of the difficulty caused for small independents.  The Haynesville Shale Play did the same thing to those companies in 2008 and with lingering affects since.  There are other potentially productive formations overlying the deep plays such as the HA and BO shales and, possibly, the Brown Dense (L SMK).  The challenge for mineral owners is how to lease by some reasonable depth or formation definition, get the lease terms appropriate for each and begin receiving royalty income while avoiding "all depth" leases.  This is an old discussion that was had a number of times three years ago.  Then mineral owners then were not interested in any other prospect than leasing their mineral for $10K++ per acre.  By now I hope that mineral owners, particularly those who are GHS members, are better informed and can realize the benefits of leasing varying depths to different companies.  Yes, it can be complicated but experienced O&G attorneys have been writing leases with depth clauses for fifty years.  It ain't rocket science but it not something I recommend for mineral owners to attempt on their own as there are a number of potential pitfalls.  The small, independent energy companies have been an important part of NW LA. and SW AR. exploration and development for many decades and our economy would be the worse off without them.

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Permalink Reply by W Sharp on May 9, 2011 at 13:53

Wondering about the pitfalls of depth clauses? In Louisiana what would happen if a mineral owner/non landowner, leased to a certain depth say 10,000 and production was started within the 10 prescriptive period, would the minerals below 10,000 be lost to him after 10 years without production? Or would the production hold all mineral depths for 10 years after production ceased? 

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Permalink Reply by Two Dogs, Pirate on May 9, 2011 at 14:03

Depth makes no difference.

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Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2011 at 14:30

I agree, TD,P.

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Permalink Reply by W Sharp on May 9, 2011 at 14:37

Good to know, one of those things I started thinking about after signing a lease with an absolute depth clause.

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Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2011 at 15:13

The standard lease form language which holds a lease in force for all depths below the deepest depth produced or drilled within the primary term of the lease was an innovation in its day.  A day long before the wide spread use of modern drilling and completion technologies.  The new reality is that a mineral owner could, and should, have the right to lease multiple depths to multiple operators so that all formations and zones reasonably considered to be productive will be produced based on economics.  In such a new reality there is not only more work for Two Dogs but for every other profession that relies on leasing and development to provide jobs.  Not to mention mineral owners receiving multiple royalty income streams and the state collecting vastly increased severance tax revenues.  The overall economic impact of mineral development based on revised mineral codes which take into account the new development paradigm would be difficult, if not impossible, to overstate.

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Permalink Reply by W Sharp on May 9, 2011 at 15:49

I did insist that the lease show on its face that it has a depth clause of 11,500 to make sure it would be apparent even on a cursory review of court house records. But the Oil company agent showed up with a memorandum of lease, fortunately it also had the depth clause of 11,500 on its face. Not sure if that is the normal for the Memorandum to show the depth clause or not. It would seem that if not it would make it much harder for landmen.

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Permalink Reply by Herman (Chuck) Plonnigs, III on May 9, 2011 at 10:05

I, and my family, have land in Union Parish. We were approached last year by a group out of Arkansas wanting to bring in old wells drilled in the late 40’s that have not produced in decades. They have successfully brought one back into production and, as I understand it, plan on bringing in at least one more sometime this summer. They approached us, originally, with an “open” lease with no depth restrictions. As these are shallow wells, under 3000 feet, I put an addendum on the lease limiting their attempts to stay no deeper than 3000 feet. There was no issue with that and leases were signed. As it stands now we have a shallow well currently under production, not much but a little is better than nothing, and I have another lease, from a different group, requesting the right to explore anything deeper than 3000 feet. As of now I have not signed this lease as I have two primary concerns 1) the land man say’s he doesn’t know what formation they are interested in drilling and 2) the lease is for four years with a three year option.

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Permalink Reply by P.G. on May 9, 2011 at 10:12

Them asking for 7 years doesn't sound like they are serious about drilling anything soon, huh?

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Permalink Reply by Skip Peel - Mineral Consultant on May 9, 2011 at 10:20

Chuck, IMO All Depth leases in prospective locales should be a fast fading remnant of the past.  At some point in the future, so will lease terms of the lengths you mention.  I do not think that there is any big operating company or companies behind the Pine Belt and Triad leasing along the AR./LA. state line.  I think it is much more likely to be speculators looking to build as large a lease block as possible at cheap prices and hold it for an inordinate period of time with the expectation that some of it will have value and that they can farmout shallow rights to HBP  some acreage without having to pay to extend.  Regardless of whether I am correct, small independent o&g companies will continue to get cut out of leases for shallow prospects if the only way they will buy them is with All Depth rights.  I hope that mineral owners will give consideration to those that are willing to lease with reasonable depth limitations.

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