Replies to This Discussion

Permalink Reply by jffree1 on February 8, 2011 at 11:46

Ben, I see Rule 37 exceptions used a lot where there are numerous undivided interests in a tract and I understand that there can be several reasons why an owner may not be signed.  Holding out for a bigger bonus is a good one to start with, though, so... 

If there are several owners in a tract and all sign except for one lone holdout then that holdout has virtually no leverage to command a larger bonus or royalty than was offered to the other owners in that tract.  What are your thoughts on that? 

And, it looks to me like, if a person turns down the offer accepted by the other owners in the tract, he would not be able to meet the requirements under MIPA to force his way into the unit.  Is my thinking correct?

How would it differ for a drill site tract as opposed to a non-drill site tract?

Permalink Reply by Ben Elmore on February 8, 2011 at 17:49

As to your first question, I would tend to agree with you unless we are talking about a drllsite tract. In that instance, he has the ability to claim his share of production without dilution from the unit (after payout) even though the other owners in the tract signed. That may provide more leverage to get a better deal. Depends on the size of the tract also. A larger tract owner commands a bigger piece of the pie.

As to your second question, I would agree MIPA would most likely not be available.

MIPA is rarely used by UMOs. It is more commonly used by operators. A nondrillsite tract owner would benefit from MIPA, because he will not share in unit production without being included in the unit. An unleased drill site tract owner receives his full mineral interest share of production from the well. In that regard he would not want to use MIPA unless he thinks the well would not pay out, but I can't imagine that scenario arising.

Permalink Reply by jffree1 on February 9, 2011 at 4:02

How does a mineral owner discover when a well reaches pay out?

Permalink Reply by Ben Elmore on February 9, 2011 at 7:25

As a UMO, he has the right to receive an accounting from the lessee.

Permalink Reply by Ben Elmore on February 12, 2011 at 3:21

One other thing for UMOs to consider is that Rule 37 only applies to the physical location of the wellbore, not the distance the proppant travels via the frac.  Our Texas Supreme Court recently held that a frac that extends across lease lines underneath acreage not included in a unit or leased by the operator is not a trespass.  See Coastal Oil & Gas v. Garza Energy Trust.  They held it was simply an application of the rule of capture.  They departed from 100 years of case law on the subject.  So, an operator who does not apply for or fails to obtain a Rule 37 exception, can place its horizontal drainhole in a legal location within the spacing requirements, but frac close to the UMO lease line and draw hydrocarbons from underneath the UMO land.  The Supreme Court simply says it is up to the UMO under the rule of capture to protect its interest.

Permalink Reply by little ole 1st grade teacher on February 20, 2011 at 17:07

Mr. Elmore,

I have sent you a message on your work e-mail.