Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on October 23, 2017 at 2:22

Owners of unleased minerals should not expect a bonus.  I'm pleased to hear that an operator is offering a lease as that is rare on such a small open acreage.  I have been lobbying for some time for a requirement that all Haynesville operators offer leases to all unleased ownership interests in their drilling units.  Those companies will not be interested in "negotiating" over such a small unit interest.  They should be required to offer a standard form lease with a quarter royalty but should not be compelled to offer a bonus. 

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Permalink Reply by Dion Warr, CPL on October 23, 2017 at 5:03

Skip:

Mineral owners in LA generally have benefitted from an absence of leasing requirement under our force pooling procedures, as pooled acreage is not subject to risk penalties for nonconsent (as it is in other states). It incentivizes WI owners to make agreements to lease.

In other states where such mandatory offers are codified, a "best prevailing terms" arrangement generally results in mandated lower terms based upon prevailing terms in adjacent sections. Competition is not incentivized to do anything except to meet mandated minimums of acquired leasedhomd to apply for unitization, then submit records of polled results of "prevailing terms". The leverage is then applied against the UMI to sign, or else.

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Permalink Reply by Skip Peel - Mineral Consultant on October 23, 2017 at 5:26

Hi, Dion.  I agree that Louisiana mineral law is more equitable to mineral owners regarding risk penalties.  And I certainly do not find the "best prevailing terms" arrangement to be one that is beneficial to mineral owners.  The problem, and my interest, are related to the land rush in the early days of the Haynesville Shale.  Operating companies, through their contracted land companies, passed over far too many small ownership interests that were clearly evidenced in the public record with easily sourced contact information.  Operating companies made conscious business decisions to cut corners and speed up the acquisition of development rights.  I think that there is sufficient evidence to establish that a quarter royalty is the "prevailing royalty term" for the Haynesville Shale.  And, in consideration of the practical implications of very small mineral interests, it is reasonable to make a take-it-or-leave-it offer of a standard form lease, approved by the state, with no bonus payment.

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Permalink Reply by Dion Warr, CPL on October 23, 2017 at 8:59

Skip:

And here you have brought up the other key issue - there is no mechanism by or under which the State of LA is empowered to act to approve lease terms or forms on behalf of private landowners. To do so would be to interfere with the rights of Lessor and Lessee to freely contract as to lease (or not lease). The protection of the owner is by the force pooling mechanism (under which the owner cannot be unreasonably excluded from its prorata share) and by protections reserved solely to the unleased owner from charges unrelated to the direct costs of drilling, completing, equipping, capture from and reasonable supervision of the well(s).

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Permalink Reply by Skip Peel - Mineral Consultant on October 23, 2017 at 9:15

The mineral code is deficient in many regards to the adequate and reasonable protection of mineral owners.  Not to mention the fact that it was developed and refined in the age of vertical development and is unsuited to dealing with many issues regarding horizontal development.  The old rules don't work so well.  Time for new rules that recognize the current reality.

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Permalink Reply by Dion Warr, CPL on October 24, 2017 at 4:55

Skip:

Hang on - are we dealing with UMI that was never approached, or were approached and then chose to reject initial (pre-drill) offers and now cannot field an at-large offer because units have been drilled and lessees are unwilling to extend an offer? If the former, I think you have a legitimate beef - if the latter, how many bites at the apple should the owner be extended? What if they go "nonconsent" at the first well; should they be extended an offer (preapproved by the state or otherwise) prior to each and every well sondrilled in the unit? How far should this additional protection go?

Unleased mineral owners persisting in producing units is by no means a new phenomenon or one born from horizontal development.

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Permalink Reply by Skip Peel - Mineral Consultant on October 24, 2017 at 5:05

I'm referring to both the UMIs who never received an offer to lease and those that did but chose to go non-consent.  I understand your effort to separate the two and agree with you to an extent.  I'm just unsure how you allow a remedy to one and not the other from a legal standpoint.  The state has seemingly unreasonable rules for compulsory drilling units such as no minimum acreage under lease provision prior to applying for a unit however I get that the state relies on business economics to compel a unit operator to lease the bulk of the unit acres.  Using the same rationale, the economics should be improved to have as little, or no, open acreage in any unit.  As long as the lease provision does not create unnecessary expense to the operator, they should benefit.  And any of the UMIs, regardless of which category, can still decide to remain or go non-consent.  I suspect that with sufficient hind sight, the majority would choose to execute a lease.

My comment concerning the material legal and regulatory differences between vertical and horizontal development is directed to problematic portions of the mineral code and not related to offering leases for UMIs.  Most of the changes required to address horizontal development would benefit operating companies more so than mineral owners.

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Permalink Reply by Paticia Janet Hendrix on October 23, 2017 at 4:32

Landman working for Indigo Haynesville LLC has offered $1000 per acre & 1/5 royalty for 3 years with a 2 year renewal option on 60 acres in DeSoto Parish...Section 36 11N 11W

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Permalink Reply by RONNY on October 23, 2017 at 6:59

For kittycatmama,  no bonus and a 1/5, may be the best you get

For Patricia,  I think you can get $1500 and 1/4. No 2 year extension  Don't be too greedy and get left behind. 

JMO

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Permalink Reply by kittycatmama on October 23, 2017 at 8:56

We wouldn't take less than 1/4 or we stay unleased. Unleased has not been that bad. Was a good well and paid out quickly. I had already learned the ropes of the UMO and what to request. I have a friend who had 5 ac. near Grand Cane. He leased in 2010 for 25% NET lease. 5 CULs went on his property and looking back now on his spreadsheet, he would have been way ahead in income if he had stayed UMO; however hindsight is 20/20. At the time he leased he didn't know how good his area was so he and the gas company took risks.

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