Replies to This Discussion

Permalink Reply by buz person on August 15, 2009 at 2:51

I'm not sure how those Texas and Louisiana agencies would respond. I would hope that the A.O.G.C. would uphold Ar. B-43 and not cave to La. headquarted B.L.M. My families land is in the unit area and we have been petioned to join the unit by seeco. Only 13% of the unit is private land and I,m not sure how many landowwners have joined. The few I have heard from think they have no choice to join or their gas resources will be sucked out from under their land from adjacent horizontal shaft wells. I've heard nothing from other companies (chesseapeak, petrohawk) who hold leases in the proposed unit area. The hearing is at A.O.G.C. office 3309 Phoenix Ave. Fort Smith, Ar. at 9:00 a.m. Aug. 25. Inquiries should be directed to Commission att. Alan York.(Alan.York@aogc.state.ar.us.) Opposition must be notified in writing to the A.O.G.C. commissioner and seeco's attorney(Daily & Woods, P.L.L.C. P.O. Box 1446, Ft. Smith, Ar. 72902-1446 by fri. aug 21 2009.

Permalink Reply by Dion Warr, CPL on August 15, 2009 at 5:08

John G:

While I cannot speak as to AOGC (I just don't do enough work up there to comment in a knowledgeable manner), and I have not seen the petition, I would believe that SEECO would be seeking to set up a reservoirwide unit.

Has there been prior production from the reservoir on a smaller unit basis (or smaller well spacings)? Will this be a secondary or tertiary enhanced recovery project which will result in an additional drawdown of the reservoir as a whole? Generally the petitioner will present geologic and geophysical evidence which supports the continuity of the reservoir and the plan in general.

Additionally, while BLM lands are generally subject to the regulatory rules in which the land is located, the state rules can be inapplicable in the formation of federal units which consist a sufficiently large proportion of federal property. The rules regarding federal units are very different, and can result in the unitization of thousands of acres held by single wells. Therefore, it may not necessarily behoove the private landowner to oppose the inclusion of their land and minerals into a reservoir unit regulated at the state level, if the operator has the option of forming a series of federal units which may be disadvantageous to the adjoining private owners.

Based upon my experience in LA, I would submit by personal belief that LOC would not be very enthusiastic about such a prospect, however, there are very few large blocks of federal land located in LA, so the issue is raised very rarely. I did some work in western Louisiana around Ft. Polk and associated grounds and USFS property, and as large as units were in the Austin Chalk (±2000 ac. in some cases), the federal units were as large as 10,000 - 15,000 acres. Federal rules do regulate the orderly development of units (and the feds can wield significant leverage in promoting the development as it deems necessary).

Permalink Reply by john goodday on August 15, 2009 at 10:21

A reservoir consisting of 182,000 acres - are you kidding me? This is about one thing and one thing only - HBP'ing as much land with as few wells as possible. There is no geologic reasoning, much less evidence involved in this attempt to blindside the Arkansas Oil & Gas Commission.

You are correct - BLM lands are subject to regulatory rules in which the land is located, however, the rest of your arguments don't make any sense.

"Therefore, it may not necessarily behoove the private landowner to oppose the inclusion of their land and minerals" - WHAT?

Why would anyone support a UNIT that consists of 182,000 acres with an eleven (11) well commitment. Once again, that translates to one well HBP'ing over 7,000 acres.

Permalink Reply by Allen67 on August 15, 2009 at 12:50

This is all new to me but what counties are they trying to do this? Also, has anything this stupid ever taken place in Arkansas?

Permalink Reply by john goodday on August 15, 2009 at 13:06

The counties are Conway, Johnson, Van Buren & Pope.

182,689.10 ACRES / 284 SECTIONS / 11 Wells

Permalink Reply by Allen67 on August 15, 2009 at 14:20

This is out of my league, but I think I would be doing alot of homework on this one. Contacting anyone and everyone you can think of and then some others! You only have 10 days to find out all the information you can so good luck. Oh and the first person I would call is th AO&G themselves to see what they say. At the least maybe they can tell you if anything resembling this has ever been brought up before them, and if so , what did they do!!

Permalink Reply by Checkmateking on August 15, 2009 at 23:49

your royalty check will be about .000000000001 cents a month

Permalink Reply by Dion Warr, CPL on August 16, 2009 at 10:43

John G:

Let me explain it a different way:

The only way that any unit of such a large size could be justified is as a proposed reservoir unit. No other plan could even be remotely justifiable. Considering that you have not reviewed the evidence to be presented, I suggest that you (as an interested party) attempt to ascertain what they might present, so that you can attempt to refute their testimony and proposal in a meaningful way -- "Are you kidding me?" will not suffice as a meaningful counterargument. If you have any information, post it. Bring it with you to the hearing (I would hope you would be attending if you feel as strongly about this as you do.)

As far as AOGC being 'blindsided': I wouldn't worry about it. They have the ability to accept, reject, or delay any action as they deem necessary to receive all evidence that they deem pertinent. They have more choices than a mere "yes or no, take it or leave it" decision, particularly if they feel that the geologic, geographic, and geophysical evidence is insufficient or inconclusive in making a determination.

If the operator fails to unitize the BLM and surrounding private acreage through the AOGC, they may opt to form a series of federal units, which are solely regulated by the Feds and their rules. In federal units, thousands of acres can be HBP by a little more than a single well, provided that the operator's plan meets with the approval of the Feds. If your lease allows for lessee's right to pool without your joinder, your acreage can be included into a federal unit under their rules, no questions asked and your support not required.

You need to review their plan to see if you may turn out better from a royalty and revenue standpoint under their plan rather than a more traditional unit plan. A legitimately formed and managed reservoir unit will generally result in a higher EUR than a traditional 'unit-by-unit' development, and generally does not require as many wells to be drilled than unit-by-unit based development. Also, owners in areas of thicker pay zones generally receive a higher unit RI percentage than in traditional units, which are strictly calculated on the basis of unit tract participation. Thus, if you're in the 'fat part' of the reservoir, you may benefit from a reservoir unit paid on basis of 'acre-feet' rather than a traditional unit.

Including large amounts of superfluous acreage dilutes everyone's interest (including yours). Being cut out of a producing unit and not having an offset well drilled could also result in your reserves being drained as well, with no compensation whatsoever. Examine all possibilities as to what may happen to your acreage and your royalties, no matter how absurd you think the SEECO plan might be.

Your personal opinion (or mine for that matter) as to whether this proposed plan makes sense is of no consequence to the regulatory agency, if all other requirements are met. Mere protest without a substantial argument will mean little in a regulatory hearing. And once AOGC approves the unit (or for that matter, a federal unit is approved by BLM) which includes your acreage, your hands are tied.

P. S. Eleven wells drilled within a 'UNIT' that consists of 182,000 acres would average to one well per 17,000+ acres, not 7,000.

Permalink Reply by john goodday on August 16, 2009 at 12:42

Forgive my calculations, but do you feel like 17,000 acres per well would be more equitable in the eyes of the AOGC?

It's evident by your comments that you have not read one page much less the 172 page Application filed by SEECO under Order Reference No. 577-2009-08.

You state - "The only way that any unit of such a large size could be justified is as a proposed 'reservoir' unit". Not one mention of "reservoir unit" is ever referenced in the entire 172 page Application by SEECO - NOT ONCE!

Permalink Reply by Dion Warr, CPL on August 17, 2009 at 3:26

John G:

You're right, I had not. I thereby retract all inapplicable comments regarding reservoir units, and apologize for any confusion that they may have caused. I stand by the fact that I made them in error, and do not edit or revise my content in any attempt to cover my mistakes. Thus, please understand why I do not take them down. If you feel like they detract from your discussion, feel free to take them down as you wish.

Thanks for posting the Order Reference Number (which I wish you would have posted to begin with, so I didn't have to waste your time and mine wondering aloud) so that I would not have to sift through all of the other orders to find it.

Federal units, as I pointed out before, are a different animal altogether from state units. Small amounts of federal land included into a larger proportion of state or private land within a state usual requires communitization of the federal property into a unit as formed by the state, under state regulations. Whenever federal acreage makes up a very large percentage of the area to be explored, the feds assert their authority over their acreage, with it brings in their procedures and protocols. The drilling plan that you are looking at is how their process works. From the AAPL website:

"The term "unit," when used in federal exploratory units, is not at all the same as the term unit when used by civilians in terms such as spacing unit, production unit, proration unit (Texas) or just plain unit (Louisiana). It may help you to think of it more as a federal exploratory pooled area inside of which there will be spacing units (called participating areas in the federal language)."

The participation area listed in the application was on the order of 5,000 - 6,000 acres (I don't have it in front of me; downloading the whole PDF crashes my laptop). Any acreage not held by the drilling of a well which is capable of producing in paying quantities will be dropped from the 'unit'. So they cannot hold 17,000 acres with the drilling of a well, unless approved by BLM. The use of large participation areas is standard operating procedure for the federal lands, irrespective of AR B-43.

Also: On the 5th anniversary of the effective date of the first initial PA, the unit will automatically contract to the size of the existing PA’s unless drilling is being conducted outside of existing PA's. The unit will continue to be HBP as long as drilling continues with no more than 90 days between the completion of one well and the commencement of the next, for up to five more years. All extending wells must be outside of existing PAs. A two-year extension of the continuous drilling program may be obtained upon request from the BLM.

In order to form such a unit, the operator must, among other requirements, "Obtain ratification and joinders from all interest owners in the unit. Approximately 85% of the acreage in the unit must be committed. In order for a tract to be committed, 100% of the owners of the tract must commit, as to both working interest and base royalty."

It is listed in the Arkansas app that they have obtained approximately 90% of the area (most of which being large swaths of BLM acreage), and are continuing to obtain such ratifications. It would appear that the approval of the AOGC petition would be sought as to obtain waiver of B-43 on privately-held and/or state acreage so that the operator would be able to integrate the remaining private acreage not already under lease. If they don't receive it, the operator will more than likely gerrymander out any acreage on the fringes of the unit area, and reapply to AOGC, or simply form the units under the federal rules without the benefit of the tools available under state consent. IMO, more than likely, where owners have consented, the operator will get this approval, as the feds would be averse to develop a national forest on 640 acre unit spacings, with all the surface impact required to do so.

Remember, the use of the term unit in federal language is not a unit as defined in state regs. Drilling 11 wells therefore cannot HBP the whole block of 182,000 acres, and is not about HBPing as much land as possible. The feds to require such large-land development plans in order to secure the PAs and thus hold their block acreage, and demands specific performance within those areas in order to continue.

AAPL's website has a good discuusion on federal units here.

If you wish to present more information for me to review and comment further, I will be more than happy to do so. It was not my intent to be merely contrarian or mislead you. If you simply intended to gripe as to the injustice of it all and be cross as to anyone who might attempt to analyze the situation, and/or jump anyone not sharing your conclusions on the matter, maybe it would be better for me to cease posting on this discussion.

Please reply as to your wishes.

Permalink Reply by Allen67 on August 17, 2009 at 5:30

Please dont! I appreciate your knowledge on the subject and I say that this forum is intended to help inform others who are short on knowledge in this area! (me included) Sounds to me like you are very informed , and we all are learning alot.It seems to me that Mr. Goodday just doesnt appreciate it. Mr. Goodday, please keep this board on a positive track. It has been that way since the beginning and we would like for it to stay that way. To me, a simple thank you for your input would have been better.

Permalink Reply by Dion Warr, CPL on August 17, 2009 at 16:40

Allen67:

Thanks for the appreciation, but I believe Mr. Goodday has decided to seek advice on this topic by posting a duplicate discussion on the main forum. Hopefully he is finding his needed assistance with Baron and Mmmarkkk.

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