Replies to This Discussion

Permalink Reply by Rock Man on May 23, 2014 at 12:13

EnCana may not have totally transferred all the land records to Halcon and/or they have an arrangement whereas EnCana handles these sort of issues for "x" months.

Paying the option now even though well is drilling is probably just playing it safe. Small potatoes for the operator.

Or it may be a clerical error

Permalink Reply by Recordman on May 23, 2014 at 12:19

Thanks Rock Man. I can certainly understand Encana handling this sort of thing for a certain time. So if they may be just "playing it safe" is there a chance I'll have to return this check?

Permalink Reply by Rock Man on May 23, 2014 at 12:28

I think that you can keep the payment but I am no expert on that / will defer to the more knowledgeable posters on this matter

Permalink Reply by Dion Warr, CPL on May 24, 2014 at 6:14

Group:

It is my understanding that Encana transferred undivided working interests in many areas to HK, rather than assigning all right, title and interest. In other words, they retained (sometimes small) amounts of WI in these leases. If Encana has reached a cooperative arrangement with a third party and remains a co-owner in the leasehold, it is likely that such a transaction would address lease maintenance issues, e.g., which party would maintain lease obligations and for what period of time. Unlike royalties, which co-owners can (more commonly) elect to pay their respective shares of those obligations, lease rentals and extension payments generally are paid in full by one party (co-owner) as insufficient payment of a rental or extension is normally fatal to the lease. Thus attempting to coordinate proportionate shares of rental or extension payments amongst co-owners is not only unwieldy, it can be risky as well.

With respect to possible unnecessary payments given recent operations, many companies make decisions to set their obligations calendars 2 - 3 months in advance, and pay pending rentals the month before they are due. In these days of the massive automated check runs, companies less and less hold rental payments to the last few days to wait and see if the well spud will be timely or not.

Good luck to you with the well in which you own interest.

Permalink Reply by Skip Peel - Mineral Consultant on May 23, 2014 at 12:27

It is common for drilling units to cover minerals leased to multiple parties.  Although the state's compulsory unit order force pools all mineral interests in the unit it does not alter the terms of the leases for the lands in the unit.  EnCana is still your lessee and could assign the lease to Halcon or participate as a Working Interest in their well(s).  As to why they are paying an extension option when the Black Stone wells have spud,  I don't know.  Rock Man could be correct about a clerical error.  You could contact EnCana to inquire.  Or you could just remain silent, deposit the check and wait to see what happens.

Permalink Reply by Recordman on May 23, 2014 at 12:35

Thanks Skip. I think I'll just keep my mouth shut and hold on to this money for a while.

Permalink Reply by Pville on July 4, 2014 at 7:51

Skip, thanks for all the info you provide.  I'm understanding from your reply above that when a well spuds, the leases become HBP. Is this correct or does the well have to actually produce? Hence the phrase-held by "production".  

Permalink Reply by Skip Peel - Mineral Consultant on July 4, 2014 at 8:00

You're welcome, Pville.   To be more specific, a lease may be held in force past its primary term under the terms of typical lease forms by operations.  In other words as long as operations associated with drilling and completing a well are ongoing the lease remains in force.  At the end of those operations a well is either produced, plugged or shut-in.  If produced the lease is HBP.  If plugged the lease expires.  If shut-in then the language in the lease controls.  Usual shut-in clauses may provide for a period of up to two years to keep the lease in force by annual shut-in payments.  Obviously shut-in is not Held By Production but the result is the same as long as the lessee makes the payments. 

Permalink Reply by tc on May 23, 2014 at 12:29

I have always thought the EnCana & Halcon deal was a little confusing, so EnCana could still own the leases.  I wonder if an analogy would be that EnCana owns the building, but enter into a rent to buy contract with Halcon and until Halcon makes the full payment, EnCana will still be the owner.

Your post would also seem to indicate that HK & ECA have only 2 years to drill between 125-250 wells, based on unit size, to hold by production 250k acres. 

Permalink Reply by Recordman on May 23, 2014 at 12:37

I've been confused by the Halcon & Encana deal too, since there's been no official word from Encana that I know of. Have I missed one? I just hope the BlackStone well is a good one!

Permalink Reply by Skip Peel - Mineral Consultant on May 23, 2014 at 12:56

The only public statement by ECA that I recall concerning their TMS leasehold was in the May 19 Earnings Call.

We still hold approximately 200,000 net acres in the play with an average working interest of 91% where we are focused in the central and eastern portions of our original land base.

 

Permalink Reply by tc on May 23, 2014 at 22:37

This was also in the earnings release and is the sentence right before the "We still ...".  "The company also entered into an agreement with a third party in the first quarter to help accelerate evaluation of the play."  Many people interpret that to mean HK and third party usually means you still have some sort of ownership control.