Received a PSA from R. Lacy Services, Ltd. for one or more Horizontal Drainhole Wells that may traverse 4 separate Gas Units (hopefully that is the correct vernacular) in Panola County.

While not being savvy enough (yet) to ask the right questions, the PSA seems rather general, i.e., "...plans to, from time to time, drill one or more Horizontal Drainhole Wells...".  Further, specific plans for drilling are not stipulated and, as such, proceeds cannot be definitively determined - as far as I can tell.

Bottom line:  I'm soliciting recommendation of a Texas attorney to assist me with this PSA.

Thanks in advance for any recommendations/advice!

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I do not know an attorney, but I had questions on this well (it is being drilled on our family's land).  The land man for Lacy was helpful.  He told me that depending on the success of the Turner, Metcalf, Shivers well (it was in this weeks Tyler Paper "East Texas Drilling Report") there are plans for a couple of more wells that will be in the Turner, Hicks, Metcalf and Shivers unit.  This PSA will cover future wells in these units.

Pinky Palmer in Marshall is a savvy attorney and has dealt with Samson over the years..wouldn't cost much to just ask him what it means one way or other.

I'm very familiar with R. Lacy, my father was field superintendent for them for 20 years, and worked his entire life with them. They have long range goals, and never wavered, during the shale boom.... they kept their drilling program the same as it always had been. So, I'd have to call them stable.... they've never 'overreached', buying expensive leases.... most of their production is from leases they've held for 70 years or more.

Most lawyers in Panola County do work for both sides... on retainer by energy companies and work for individuals. Trouble is, ascertaining where their interests truly lie.  Robert Underwood is in Carthage, and he's ensured that different family members came out on top, with potential leases.

If you sign one of the PSA's be sure to have it in the lease that each well has to be renegotiated.  PSA's have advantages and disavantages.

You have larger area that you can participate in if they drill.  But your royalty will be diluted by the added acres..or royalty owners.

If you have 640 acre unit and they drill on it  you get all of royalties.

If you do PSA into a 1600 acre unit you will get only royaltye divided by the number of acres in PSA unit...  so the gamble i are they going to drill in your unit or your neighbor's unit and you spread out your share.

PSA's encourage companies to drill more wells.  PSAs are needed for extended lateral wells.  The advantages for the mineral lessors should outweigh any concerns regarding dilution of interest.  Each lessor is paid on the linear feet of lateral located in their unit.  They do not get paid for production from the lateral in any other unit unless of course they own minerals in that unit.  So once that lateral leaves your unit boundary it doesn't matter where it goes.  You've got yours.

best explanation I have heard.  will ponder this info

It’s my understanding that a Production Sharing Agreement (PSA) well is allowed when operator asserts that it has production sharing agreements with at least 65% of the royalty owners within each of the combined units. These agreements allow the operator flexibility in combining lease units and as a means to control liability since combining units without Lessor approval could eventually be considered a means of illegal force pooling (in TX). An allocation factor is used for the allocation of production across units. Production is allocated based on how much of the producing portion of the well horizontal lateral falls inside each lease unit (as a percentage). Royalties are then distributed based on the Lessor’s ownership within his respective unit (as a decimal interest). That is my understanding, so correct me if I’m wrong.

I recommend Flowers Davis PLLC for your PSA contract review.  They have Tyler and Longview Offices.


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