Replies to This Discussion

Permalink Reply by Henry on June 4, 2011 at 12:22

Highwayman,

Thanks.  Yes, that is the same site I'm talking about.  I'm told they are hauling water away with many trucks per day.  I'm also told they are ramping up operations at the site -- adding new oil tanks, separators, etc., as if they intend to have future ops there.  Any thoughts?

Permalink Reply by Les Bamburg on June 4, 2011 at 3:06

Highwayman, I made my original statement assuming one or more wells were pumping in January and February which had no recorded oil production.  Now that we have the additional information concerning the workover rig, we can see how much oil was produced in the later months and if that will be sustainable.

 

The pumping water is analagous to the emergency room.  You try everything before walking away from the patient.  So you may continue pumping for a couple of months hoping to restore oil production from the field. 

Permalink Reply by Highwayman on June 6, 2011 at 3:00

Henry,

I've only seen the location while fishing.  I don't know what they are doing or have plans to do.  If I hear something I will let you know.

Permalink Reply by Les Bamburg on June 3, 2011 at 3:55

Henry, it would seem you have a case since the last reported production was in December.  See the attached for recent production history.  There are only nine wells listed as Active - Producing but that is just status so no indication the wells are actually "producing". 

Attachments:

• Black Lake Field.pdf, 35 KB

Permalink Reply by Henry on June 6, 2011 at 8:19

Sonris just posted the March production data from Black Lake Field.  34 bbl of oil and condensate -- for the entire 20,000+ acres in the field.  All that effort for 34 bbls.  This does not look like production in paying quantities to me.

Permalink Reply by Skip Peel - Mineral Consultant on June 6, 2011 at 9:40

Henry, do you know the definition of production in paying quantities as it applies to stripper wells?  I would suggest that should be your next question and research.  Stripper fields are a separate production category and are treated differently.  You might want to ask The Baron.

Permalink Reply by Henry on June 6, 2011 at 12:07

Skip,

I admit to having no clue about the differences.  I only know RS31:124.  I'll go ask The Baron.  Thanks for the tip.

Permalink Reply by The_Baron on June 7, 2011 at 5:05

I'll say that with what appears to be a field that is being re-worked and a partial restoration in production.. (the field has done well in the past but has fallen off for a few years), that breaking leases will be difficult. Also, CHK will fight hard to keep leases in place.

 

The petit unit is interesting, the large unit was established under a voluntary unit production agreement signed by most mineral owners for the "gas cycling and pressure maintenience" of the whole field. It would be hard to make any real conclution without revieing this document and the leases involved.

 

Also, When we talk about paying quanities... a short lapse in production is not cause for breaking a lease. As long as an operator is working to restore or enhance production they could hold the lease. YOu would have to prove that no activity was taking place. The large number of wells listed as Shut In- Future utility also concerns me, as these wells could be used to enhance production in other wells (CO2 flooding maybe) or even be re-completed.

 

The field produced over 3200 bbls of oil and condensate in 2010, while the royalty owners may not have seen much, the operator would have netted several hundred thousand dollars. The mineral code is very clear:

 

From RS31:124

It is considered to be in paying quantities when production allocable to the total original right of the lessee to share in production under the lease is sufficient to induce a reasonably prudent operator to continue production in an effort to secure a return on his investment or to minimize any loss.

 

§125.  Amount of royalties relevant to reasonableness of lessee's expectation

In applying Article 124, the amount of the royalties being paid may be considered only insofar as it may show the reasonableness of the lessee's expectation in continuing production.  The amount need not be a serious or adequate equivalent for continuance of the lease as compared with the amount of the bonus, rentals, or other sums paid to the lessor.  

 

 

Basically, you would have to prove that the operator is losing money. If you went to court  and tried to prove that production was not paying quanities, you would have to show that the operator was not operating prudently. To prove this while re-working operations are going on would be difficult. CHK would throw its weigt around with big lawyers, petroleum engineers and geologists. The recent , 2005 or so, Hosston Units also imply developemnt is comming. Especially since they have already combined downhole production.

 

paying quanities would not really matter as to the type of well, (stripper, etc.) that is more for calculating severance taxes and fees. I would venture to say that as long as CHK is willing to show they are making a profit, or will make a prfit, then you are out of luck. The Courts traditional side with the operators here. There are wells in Caddo Pine Island that produce 1 bbl in a good month, but are still economic. One well wouldn't be, but an operator with 50 wells just like that can make a good living, especially at $100 oil.

Permalink Reply by Henry on June 7, 2011 at 5:37

Baron,

Thanks for your insights.  They are very helpful.

Permalink Reply by The_Baron on June 7, 2011 at 8:24

I am in no way saying that it shouldn't be tried. But that I think breaking a lease based off what is amiditly a very quick look, would be difficult.

 

Personally, I would rather try to force CHK to further develop the acreage. Maybe possible get the deep rights released if they refuse. It would be a long, and possibly expensive option though with little hope of near term payout.

Permalink Reply by Highwayman on June 7, 2011 at 8:52

How could you force them to further develop the acreage?

Permalink Reply by BirdDawg, plain ole' idiot on June 7, 2011 at 13:18

Baron,

If CHK did further development in the Black Field to a different formation than the current production, do you think they would probably have to apply for new units?

Probably reasonable units based on the formations they would be attempting to produce from. It is obvious that the field wide unit they are producing from is basically depleted. May not be an option to get them to release any deep rights, but maybe form new units to develop other formations.

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