The board is drawing a line in the sand for TMS operators that have failed to follow certain pooling regulations  in their rush to lock up land positions.

DRAFT%20MS%20TMS%20POLICY.pdf

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Skip,

Why isn't this on MSOGB letter-head?  Did the board issue this?

That's the copy as I got it from a client.  The fact that it is a draft may account for the lack of letterhead.  I don't know the background on the document.  There have been indications for some time that unit applicants were short cutting the system in their race to lock up development rights so this is not a surprise.  As with many regulatory bodies they probably prefer for the industry to straighten this out expeditiously behind the scenes so that untization can proceed and the Board does not have to intervene.

Skip, any guess as to how long it will take the Board to adopt these new policies? It looks to me that this will significantly slow down new drilling permits and units. Do you think it will also result in more reasonable unit sizes and in you opinion, what would that be? More in the 800 acre range?

Thanks for keeping us up to date.

You're welcome.  I don't second guess anything the MS O&G Board does.  Unitzation actions need to slow down to meet the requirements for notice of unit applications and lease offers to mineral owners.  The Board has good reason to be concerned that the land grab is far outstripping the actual exploration and production.  There are dozens of units/wells permitted a year or more ago that have not been drilled.  As to the size of units, I think the Board is sending a signal that the creep in unit size has gone too far.  Since the MS TMS unit footprints are geographic (based on sections) and not geologic, the size should conform to the optimal lateral length of a horizontal well.  The 960 acre units in LA could be used as a comparison as they are formed by the same TMS operators active in MS.  A unit of one and one half sections (960 acres) would allow for an approximate lateral length of ~7920 less any applicable set back from the unit boundary.  At this point in time that would appear to be of sufficient length for commercial horizontal wells.  The most recent LA TMS unit applications are for 1140 acre units.

Skip, you have a lot of information which is very educational.  Am I correct that as an Independent Landman, you are hired by O&G companies to lease land and research title to land/minerals ownership?  This is what a glossary I read said an Independent Landman did.   If I am correct, I'm curious if you are leasing land in the Mississippi & Louisiana TMS and if you are, what company(s) are you working for?  I'm presuming you have learned a lot of this good information from working in the TMS yourself.

tom, landmen perform a lot of different tasks depending on who they work for.  There are landmen who are salaried employees of energy industry companies.  There are landmen that work for "land" companies some on salary, most on a day rate.  Those independent landmen on a day rate are unemployed and searching for work after each lease acquisition project is completed. Some landmen work mostly to find specific mineral owners and offer leases.  Others primarily perform title work. And then there are landmen such as myself who works for land/mineral owners and the law firms that represent them.  I've never taken a lease in my career.  I have assist in the negotiation of many leases.  I also offer other land services and my specialty is database research and analysis.  I maintain a tracking spreadsheet for the TMS that clients subscribe to and I have been hired in the past to perform research for owners with large TMS land holdings. They are all now leased.

The MSOGB has obviously been asleep at the wheel, either by accident or more likely by design (under a directive). The danger here is a potential lawsuit by a landowner(s), especially if the rules are inadequate or are not made retroactive. Making the rules retroactive on the other hand will stifle development. Both should have seen their actions as likely to cause a problem eventually. Criticism of both is way past due and all the problems, legal and practical, that could result can only be laid in both their laps. These proposed rules don't define what "drilling in a timely fashion" means , do not address the ridiculous unit sizes they have been approving, or what they mean by negotiating in good faith or what a good faith offer is, etc. This is all a big recipe for a protracted lawsuit that could hold up drilling and royalty checks for years. The landowners are also at fault for waiting so long to object to the pillaging of their legal rights that has been going on under their noses, despite timely warnings and in-your-face permitting approval. Once again the oil and gas industry and the politicians prove, "if you give them an inch they will take a mile." Yes I am cynical - but for good reason!

Steve, you may be right.  Here's how I see it.  The MS O&G Board is ill suited by organization and experience to handle the TMS land rush.  This is the first MS unconventional play.  The Board almost certainly does not have the staff to handle the volume of work and the play operators know exactly what the prize is and how to best get their share of it.  I doubt seriously that there will be one lawsuit amongst the TMS operators.  I'm already seeing evidence of how they will resolve the divvying up of the area prospective for TMS rock into drilling units. 

The Board will cease to approve units where there are two or more competing companies and the requirements of the pooling statutes have not been followed to an acceptable degree.  The Board will require adequate due diligence to identify and notify all the mineral interests within the proposed unit boundary of the request to pool.  They will furthermore require that those mineral interests be offered a lease.  During that process competing companies will horse trade (assign leases between themselves) to provide that units have an operator with a clear majority of leases and that those minority lease holders are agreed to participate as Working Interests. 

It will take some time to sort out.  And the Board is at fault for letting this situation go this far without flexing its regulatory muscle and reading the participants the riot act.  Some cynicism is in order but the Board and the TMS operators will work this out.  The question is, will any of this debacle lead to changes in the MS Mineral Code.  Particularly changes that benefit the mineral owners/lessors.    

I hope the operators do work it out among themselves and the MSOGB. My concern is whenever the  lawyers see a penny to be made - that is a bad development for everyone. They don't need a good excuse, they just need a short nail to hang their hat on.

I would say there is a distinct possibility of legal problems coming out of this.

I hope I am wrong.

I predict there will be zero lawsuits between TMS operators or the Board.  That's not how it works.   In the O&G industry, lawyers are always involved.  The operating companies have legal departments with many lawyers.  The TMS companies are far too experienced to take any of this to court.  It will be hammered out behind the scenes in relatively short order as usual and TMS development will go on.

What I meant is lawyers for a landowner(s) suing an operator and/or the Board if the rules aren't retroactive. I agree that we won't see operators suing anyone, least of all the MSOGB. One landowner lawsuit could tie the whole process in a knot for quite a while.

Land/mineral owners can litigate any issue they wish.  However if they expect to engage any experienced O&G attorneys in the effort I suspect they will not find any who will care to rush into filing a suit.  The Board can always dissolve a unit and start over if they need to.  I don't think they will because they will have unit applicants go back and touch all the bases regarding good faith efforts to locate mineral interests and offer leases. This leaves only the remaining issue of unit size which is not the primary problem from a regulation stand point and one that I don't expect to see litigated unless its by an attorney or firm unfamiliar with the mineral code.  Tort lawyers can and do litigate most any issue.

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