Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on June 27, 2010 at 1:26

Missy, both the sections you mention are Will-Drill Haynesville Units so IMO it is safe to say it is highly likely that their farmout agreements to the eventual operators will allow for the efficient drilling of wells including as you say drilling north and south into adjoining sections.

Permalink Reply by Missy on June 27, 2010 at 1:47

Skip,
In these farmout deals, does Wil Drill retain any interest? i.e. get royalty from these wells that Questar took over?

Permalink Reply by Skip Peel - Mineral Consultant on June 27, 2010 at 2:21

There is no way to know the specifics of the farmout agreement but it is not unusual for the company holding lease and unit rights to retain an Overriding Royalty Interest and to receive some cash or other consideration up front.

Permalink Reply by Les Bamburg on June 27, 2010 at 2:49

Missy, there have been previous comments this may have been a sale and purchase of deep rights rather than a farm-out. If that was the case Will-Drill would get money up-front.

If it was a farm-out then Will-Drill would receive an over-riding royalty interest on any production from the wells. An ORRI is an additional royalty burden that is incremental to the original land royalty. So if the original mineral owner received a 20% royalty and WD received a 5% ORRI, Petrohawk would pay a total of 25% royalties on production associated with that mineral interest.

Some farm-out agreements provide an option for the farmee to convert the ORRI to a working interest (back-in option) when the well reaches pay-out status. If the back-in option is not exercised, the ORRI would typically increase to some higher percentage (say 7.5% from the original 5% ORRI).

Permalink Reply by Les Bamburg on June 27, 2010 at 2:35

Missy, these two sections (units) are operated by different companies so it is unclear if they will share the well pad for the referenced well. The first well with a lateral in Section 5 is planned to be drilled from a different surface location near the southern section line. Fully developing two adjacent sectons would likely require more than one surface location so this is not unprecedented.

Questar, Mosley 5 #H1 Well, Serial #241198, S5-T15N-R9W
Petrohawk, Ryan 32 #H1 Well, Serial #240926, S5(32)-T15(16)N-R9W

Permalink Reply by Missy on June 27, 2010 at 7:26

Les,
The surface location that I am asking about is the Ryan 32 because it is on the north line of section 5. I wondered if they would drill south into 5 from that, but since they are different operators, as you pointed out, that may be why they would not. I checked out the Mosley 5 today and s aw something that I dont recognize as any type of rig. THey have just finished the pad and moved in something from Keithville Well Service Rig #1., But it doesn't look anything like a rig. Any ideas?

Permalink Reply by Les Bamburg on June 27, 2010 at 16:08

Missy, it could be a small truck mounted rig being used for installing the surface casing. Many operators are following this practice to save time and costs.

Permalink Reply by Missy on June 28, 2010 at 7:03

Les, Thanks for the info. I am trying to upload a photo, but not having any luck. I am sooo tech/gadget dumb!!

Permalink Reply by Missy on July 6, 2010 at 3:51

Les,
You were correct. They have installed the surface casing. This only took a few days. I can't wait to see the big rig.

Permalink Reply by Missy on July 8, 2010 at 3:11

Les,
Any ideas on what kind of time frame between the surface casing and the actual drilling? Is the well considered 'spud' at the time of surface casing?