Replies to This Discussion

Permalink Reply by lanadan Ds3 on January 12, 2009 at 15:36

I am asking myself this same question. My greatest concern is not the size of the bonus (although this is important) but the surface protections. I want a "no surface operations" clause on my 75 acres. It is my understanding that if I am forced pooled no one can set foot on my land for any reason because there would be no lease. BTW, you would receive revenue, not royalty.

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Permalink Reply by Carl on January 12, 2009 at 16:10

If you get that lease and bonus they have 3 years to drill your property or they lose everything. Motivated operators drill wells. I prefer those odds to sitting around watching the neighbors get mailbox money while you just get older. 100% of nothing is just that.

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Permalink Reply by Snake Stewart on January 12, 2009 at 16:50

Sorry to disagree Mr. Carl but without that good lease, it will only take months to blow right by that bad lease and that mailbox money you refer to. 25% of a vertical ( that HBP's you ) is much worse then "100% of nothing for the time being". IMO

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Permalink Reply by Two Dogs, Pirate on January 12, 2009 at 17:29

Snake you are still pretty young and got some time to spare. I think that I read on one thread where lanadan had 30 something years in teaching school. Lanadan seems to be more concerned with his 75 acres and having a no surface ops clause. The HS is not like the Wilcox or other formations where location may be very important. I think that most cos would be receptive to a no surface ops clause. I don't know where his property is or who has contacted or not about a lease but to predict intensions as to vertical wells would be a bit premature unless you know something that I don't know. My majors are in social studies and history not science. So I tend to believe in things that science majors may not believe. When I am sent in to do intellegence by one of the big boys to prove rumers to be true or false, I am allways the optomist, looking for the best or at least hoping for the best. Where the science person will be looking for the logical answer from scientific belief. Is a vertical into the HS capable of doing 60 million a day? Rumers rumers, who knows the best way to drill this formation? If I were a mineral owner with 160 acres I would rather 160 acre units with my 160 being a unit with a 60 million a day well. HBP me anytime. Why do the HS units have to be 640 acres or larger when they are only pulling from a few feet away from the hole?

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Permalink Reply by Spring Branch,mineral owner on January 12, 2009 at 18:29

They can still drill that vertical in your section whether you lease or not. Then you get 100% of a sorry vertical and no lease money.

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Permalink Reply by Two Dogs, Pirate on January 12, 2009 at 18:33

SB, what if the verticle is a barn burner?

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Permalink Reply by Dion Warr, CPL on January 12, 2009 at 17:15

Rachel:

From the industry perspective, this is what would normally be said in regard to you being an unleased mineral interest (UMI) owner:

(And now, my best landman impersonation, wait, I am one; OK, this is what I would say) --

Yes, you have the ability to receive 100% revenue from your share of the unit, after your proportionate share of the well costs, plus reasonable and tangible supervision cost(s), as well as your share of the cost(s) of any further reworking operations, etc.) after the well is completed, provided that there is not so much UMI in your unit that the lessee/operator bypasses drilling your unit in its E&P program. (Usually talk of dry holes, here, but apparently in a resource play, no one drills dry holes, or ever screws up.) After the initial costs are offset ($11K-$13K± per acre per well), you will begin to receive revenue on your share of the unit (revenues would be received 'after payout', in industry parlance).

Generally as the first well(s) start(s) to rapidly deplete, the operator will begin to plan additional operations within your unit. It has been purported in the HS area that anywhere from 6 -8 HZ wells per unit (section basis) would be optimal to effectively drain the recoverable gas in place. Completion costs would range between $8MM - $10MM per completion, plus reasonable ongoing supervision expense. Barring anything else going wrong (serious drilling failures, e.g., separated casings, stuck pipe/tubing, etc.), your UMI could be charged upwards of $70MM over the productive life of your unit prior to you receiving any serious revenue. Generally, however, events do not quite conspire to produce such a perfect storm; from a practical perspective, you would probably receive word of a successful well completion (and a statement of costs), followed by periodic statements of revenue on gas sales (offsetting your costs) to payout, then begin to receive revenue for a period of time, followed by another notice for the drilling of a new well (or wells), a statement of costs (or AFE), then a period of no revenue and a bunch of correspondence, and so on.

Meanwhile, your leased neighbors receive a bonus upfront, generally no other headaches, and royalty checks from about 60 - 90 days after the first production from the first well. Their checks ebb and flow depending on well completions, reworks, and depletion, but no headaches.

Your revenue checks (when you begin to receive them) are leaps and bounds ahead of their royalty checks in terms of amount, but then again, your leased neighbors have no revenue 'rollercoaster' ride either.

----

OK, from the super-assertive l/o perspective (notice Snake, I did not say 'greedy'), this is what you will usually hear:

Those guys have to come to you. Your minerals are underneath your property, and they will be until you say different. If they don't want to pay you $$$$$!!!!!! for them, let them force pool you and take you as a partner. Tell 'em to carry your costs to h@#$! with 'em, and when it pays out, you'll take ALL the money. And if they try to screw with you, you'll sue 'em for everything they have. They'll be working for you. And triple damages, too!

(Signed, E*rl, not a O&G lackey pushover... - Just for you, Earl!)

Understand that just because you have only forty acres, that may not mean that just because Brand X O&G drill other units with that much UMI, that they will drill yours.

Example: You own the S/2 of SW/NW, and S/2 SE/NW. You own 40 acres. But to an operator looking to develop horizontal HS wells with laterals running generally N/S, if you have not signed a lease, you have blocked up to 50% of the laterals of any length that can be drilled (as O&G will not only not use your surface w/o a lease, they also will not drill through or perf underneath your land either, lest they be sued for mineral trespass).

To sum up, the truth is somewhere in the middle. You have to decide what your risks and concerns are, and make a reasonable decision for yourself first, and you may even wish to consider the impact of your decision on your neighbors as well. IMO, it is generally always better to lease, at good terms, with good protections of your rights going into the lease, during the lease, and after the lease has run its course. But hey, I'm just a landman (with no professional interests at stake in your area at this time).

Good luck to you.

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Permalink Reply by Muddigger on January 12, 2009 at 17:24

Landmen are kindly like pimples, except they usually go away before you have to pop them.

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Permalink Reply by Two Dogs, Pirate on January 12, 2009 at 17:38

Depends on the Landman, some may pop your pimples first.

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Permalink Reply by Dion Warr, CPL on January 13, 2009 at 8:36

Way to raise the level of discourse there, Muddy.

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Permalink Reply by Snake Stewart on January 12, 2009 at 17:30

Risk, Risk, Risk.

Being as you are a very intelligent person Dion, (No impersonation needed) all I am waiting for is for you to tell me that you would gladly lease your acreage, on the Haynesville Shale, at this moment, for $1750 an acre and 1/5. Therefore bipassing the horrible rollercoaster ride of revenue wonderment, brought on by O&G book cooking ?

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Permalink Reply by Carl on January 12, 2009 at 19:41

I would hope that you'd want better than $1750 and 1/5th.
My thinking is that if they have to force pool it would be easier for the operators to move on down the road to the next unit where they can sink a well on property without the paperwork headaches. There's so many thousands of acres to drill and a handful of horizontal rigs. Why run them off? There's always that chance that they never drill a well around you. At least you got something out of the deal via a lease bonus. I really believe that there's a "pecking order" that's assigned to these leases. The units that were paid the highest bonuses will get drilled first. The operators have too much bonus money invested to let that slip away. If they have to let a few cheap leases expire they'll just resign them at these new lower rates or move on if the area has marginal production. I'm afraid that folks that don't lease could be waiting many, many years for a well.....if at all.

S.S.-Why would any operator want to blow millions on a vertical well just to save (HBP) a 6-figure lease bonus? At this point in the game who would sign a "bad" lease? If you don't have an knowledgable attorney handling these negotiations you deserve what you get.

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