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Permalink Reply by The_Baron on May 26, 2011 at 4:06

PG, If a well was drilled, the lease would be held. But there would be five net mineral acres of unleased intest in this tract.

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Permalink Reply by Jeremey Hankins on May 25, 2011 at 16:04

As an FYI to Skip's comment on units, mineral owners who have an existing well in their Section can view the "LUW Type Code" on Sonris and indentify whether the well is drilled on a Unit, Lease, Natural Gas Well, etc. This can be helpful to know when examining older producing wells.

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Permalink Reply by Max on May 26, 2011 at 2:03

Ok, there are six undivided owners, one doesn't want to sign, that one's % would be un-leased since the other five is over 80%?

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Permalink Reply by Skip Peel - Mineral Consultant on May 26, 2011 at 2:10

The owner not accepting a lease would become an Unleased Mineral Interest in a Compulsory Unit.  As I have attempted to point out the regulations vary depending on the circumstance.  In Compulsory units (Haynesville Shale units) the operator is given the right to "force pool" all mineral interests whether unleased or leased to parties other than the operator.

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Permalink Reply by The_Baron on May 26, 2011 at 4:26

I will try to crate a long detailed answer here as it seems we are getting into the what ifs and or buts....

 

A tract of land can have many "undivided interest" owners. This simply means that there are many owners who own a percentage of a tract, but the tract is not divided. Therefore, each owner does not own a set part of the acreage. This is very common. In order to gain clear title to any acreage (if you wanted to build a house or whatever), you would either have to buy the rest of the owners out, or have the land partitioned or Divided.

 

In the case of the minerals, and ignoring the idea of surface operations for now... Each owner can lease their part of the minerals. So If I  own 1/5 of a 100 acre tract, I own 20% (or 20 net mineral acres) of the minerals in that tract. My lease will not say anything about this in the discrpition. My bonus will be paid on a basis of 20 acres, but the lease will describe the entire 100.

 

I have leased owners who have had less than 1% of an entire section! The lease makes it appear that they own a whole 640 acres, when in reality they do not. this is just the way it works.

 

So, if someone holds out and does not want to lease, they will be force pooled. That interest becomes an Unleased Mineal intertest. The Operator would have title to 4/5 of the 100 acres. As we have said before the mineral code allows the operator to conduct surface operations at this time, but personally I would be very wary of doing so unless I had no other choice. But, If I had another surface location, I probally would not be too concerned and would feel like I could conduct operations. The economics of the playt would be a big part of this desision. In a 640 acre unit, it may not be that bad. If it was a 120 acre unit, of a more less certain conventional play, it could be a deal killer. I may feel my net would be to low. The unleased interest would be able to essentially participate cost free, and if a well is made would pay for their share out of production. Sounds great untill you drill a dry hole! then the opertor is out some cash!

 

So why would an undivided interest be unleased? well maybe they are just stubborn, maybe they are to greedy and want terms that the Operator is not willing to give, or maybe they just believe that ridding the well down is going to be more money in the long run. If it is a good well, it may very well be. If it is a average or mediorcre well,or even a dry hole it won't be a better way to go. OR.... they could just be immposible to find. It is very common to have heirs that just can't be located. somtimes you will finally find that heir only to discover, they to are dead and have many more heirs! It can get very convouluted quickly. Other states have good ways to deal with these types of problems in the title (receivership in AR comes to mind). But in LA, we sometimes are forced to just let a part of the tract go unleased.

 

To answer PGs question above, what portion of the tract is held?, it would be whatever % was leased for the whole tract. Somtimes it can be hard to find this out. Thats why we have landmen!

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Permalink Reply by P.G. on May 26, 2011 at 6:00

So if the tract were to be partitioned by the owners or from a court order, how would that change the lease?

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Permalink Reply by Two Dogs, Pirate on May 26, 2011 at 10:38

It wouldn't, if the lease was filed of record first.

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Permalink Reply by The_Baron on May 27, 2011 at 3:02

It would be no different if you leased a large tract, then sold of a few small lots. Each subsuquent transaction would be subject to all previously recorded easements, servitudes, leases, right of ways, etc...

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