Do you know waht the State could do to your unit?
Problems with Big Drilling Units
The Louisiana Department of Conservation has already approved joining some sections near the Texas line to form drilling units for the Haynesville Shale in excess of 900 acres instead of the normal 640 acre units. I understand also that Louisiana law currently limits the size of drilling units to 640 acres, so I do not understand how this change can be implemented without changing the law. Don't think this could only impact those sections on the Texas border, since once the precedent is set, it could impact unit sizing everywhere. I have several concerns with this proposal from the view of a land owner.
First, having one well hold a very large unit does not seem fair to the landowners. This could tie up acreage for an indefinite period with limited production. Also in this regard, the current rule in place that allows holding a unit for Haynesville Shale production with only drilling a vertical well with no horizontal development is an outdated rule that needs to be revisited. The limited production from a single vertical well in the Haynesville Shale should not be sufficient to hold an entire drilling unit.
Second, larger units give an advantage to large companies due to financial requirements for leasing and drilling, and limit the chances of smaller companies to compete. We have seen what letting one company dominate the situation has gotten us into.
Larger units may make it more difficult to get all the landowners to lease due to the actual number of people involved and could result in it being difficult to produce some areas. This will not benefit the landowner, the State, or the gas companies.
The reason for the large units for deep formations as I understand it was to keep companies from draining resources from a large area and only paying lease money for a small area. This was aimed at gas production in porous formations from which one vertical well could drain large areas, thus the 640 acre units. However, the Haynesville Shale is a very tight formation that requires horizontal drilling and extensive fracturing to get production. Therefore, that rationale for large units does not apply to this formation. In fact, most experts think that the wells can be drilled on 80 acre tracts or smaller. This argues for smaller, not larger units as being viable.
I encourage you to make your feelings known to the Department of Conservation. The only way we can change this or get any concessions is to get a lot of people making comments. Don't wait until the area where you own land is impacted before commenting. As more areas are changed, it may be too late to have any impact.
The Louisiana Department of Conservation has already approved joining some sections near the Texas line to form drilling units for the Haynesville Shale in excess of 900 acres instead of the normal 640 acre units. I understand also that Louisiana law currently limits the size of drilling units to 640 acres, so I do not understand how this change can be implemented without changing the law. Don't think this could only impact those sections on the Texas border, since once the precedent is set, it could impact unit sizing everywhere. I have several concerns with this proposal from the view of a land owner.
First, having one well hold a very large unit does not seem fair to the landowners. This could tie up acreage for an indefinite period with limited production. Also in this regard, the current rule in place that allows holding a unit for Haynesville Shale production with only drilling a vertical well with no horizontal development is an outdated rule that needs to be revisited. The limited production from a single vertical well in the Haynesville Shale should not be sufficient to hold an entire drilling unit.
Second, larger units give an advantage to large companies due to financial requirements for leasing and drilling, and limit the chances of smaller companies to compete. We have seen what letting one company dominate the situation has gotten us into.
Larger units may make it more difficult to get all the landowners to lease due to the actual number of people involved and could result in it being difficult to produce some areas. This will not benefit the landowner, the State, or the gas companies.
The reason for the large units for deep formations as I understand it was to keep companies from draining resources from a large area and only paying lease money for a small area. This was aimed at gas production in porous formations from which one vertical well could drain large areas, thus the 640 acre units. However, the Haynesville Shale is a very tight formation that requires horizontal drilling and extensive fracturing to get production. Therefore, that rationale for large units does not apply to this formation. In fact, most experts think that the wells can be drilled on 80 acre tracts or smaller. This argues for smaller, not larger units as being viable.
I encourage you to make your feelings known to the Department of Conservation. The only way we can change this or get any concessions is to get a lot of people making comments. Don't wait until the area where you own land is impacted before commenting. As more areas are changed, it may be too late to have any impact.
Views: 64
Replies to This Discussion
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Permalink Reply by Rebecca Anne Gould on
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Bud, my mother and I are total "newbies" to this whole thing and leased our 200+ acres to Samson Oil in April 2007 without knowing anything about the Haynesville shale. We are coming to the Nov. 17th meeting at Petroleum Club and need info like your article I am replying to today. Our property is in HA RA SU K or as we locate it, Section 6. It is just off Pine Hill Road. Could you tell me in layman's language whether we should oppose the unitization and pooling or if it would be good for us to support it? Thank you for your reply to this. Rebecca Anne Gould
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Permalink Reply by Bud on
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The area where I have property is near the Texas line west of Greenwood. They have proposed combining sections in our area to form very large 900 acre+ units. I am opposed to this and have stated my concerns in a letter to a law firm representing Chesapeake. I have attached a file with this letter explaining some of this. In simple terms, I think large units favor the large companies like Chesapeake, and limits the chances of smaller local companies to compete. I think Chesapeake has enough on its plate with thousands of acres under lease, and we are more likley to get development if we make it easier for a number of companies to be involved. I think that there will be a hearing on this in Shreveport on Nov. 24. If you want to call me, I am at 601-415-3551.
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Unit Letter 11 nov 08.doc, 23 KB
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Permalink Reply by SueBaby on
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Bud
We have land in section 17 .
If 17 and 18 are combined, wouldn't that mean that instead of the 8 wells per unit of 640 acres, we would have 12 wells for the 961 acres ( 1 well per 80 acres ) for the end results ? -
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Permalink Reply by Bud on
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That is correct. The problem is that many leases are set up such that one well that is producing anything can hold the whole unit forever without any more wells being drilled. With the amount of acreage that a company like Chesapeake has under lease, it could be their priority to drill wells to hold units rather than fully develop the units. Therefore, at least for the short term, your royalties could a lot less unless the additional wells are drilled. Eventually, the amount to landowners should be the same, but that might take many years.
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Permalink Reply by CaddoKid on
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Bud, my co-owners and I have minerals in Sec. 5 and in Sec. 17, both bordering the partial sections on the TX border. Onebane proposed to increase both units to 900+ acres. I had the same basic concerns that you do (with perhaps the exception that I believe small O&Gs can still get a piece of the action with smaller landowners, then sell to unit operators). I contacted my attorney who said that we could write to complain, and request a pre-hearing conference like you did, but that the precedent for combining full and partial units already exists (an aspect of LA law with considerable inertia) so it's not likely to have much impact. Yes, it's likely that with the cost of gas falling by half since July, operators will drill a vertical well and hold leases, but it's also likely that as gas prices rise again, they will re-enter and go horizontal, and drill more wells into a large unit, since as you pointed out, the shale is tight and will require more wells to tap the unit. I agree that it may delay the full development of the unit, but that may be offset by longer productivity, so at least theoretically... it's a push. It's all economics. Because my tract in Sec. 5 is small, and the unit is now very large, I see it as an opportunity to go in as a working interest.
Good luck! -
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Permalink Reply by Bud on
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Thanks for the information. A pre-conference hearing has been scheduled on this subject on Nov. 24 at 11:00 at the Petroleum Club in Shreveport, 15th Floor. I agree that we are not likely to change the process, but I wanted to get my points across. In my situation, we have had some discussions going with a smaller operator who wants to drill but may not be in a position to get the entire 900+ acres under lease. We had a tentative agreement with Cheaspeake, but they bailed, so I do not have a good taste in my mouth about that. Since we do not have a current lease, I am working on some lease wording that would address the concern about a company being able to hold a whole unit with just a vertical well. I know what you are saying about the long term, but I would like to get some assurance that I can get something before I am too old to enjoy it!
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Permalink Reply by SueBaby on
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Any idea when / and exactly where the well would be drilled in this
unit ? -
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Permalink Reply by Bud on
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The notice to be covered in the pre-conference is for combining Sections 17 and 18 of R16W, T16N. To my knowledge, there has not been a permit request for a well for the unit yet. I assume that would be done after the request to from the unit is approved, and would likely be fairly soon if they are going to this effort to get this done.
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Permalink Reply by SueBaby on
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Bud, Thanks
Would we also get a notice when they file for a permit request for a well ? -
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Permalink Reply by Bud on
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I think all those that have property in the unit should get a notice which will include a map with the location. I am not sure this is done with all wells, but I think for at least the first well in the unit, which they term the "unit well", the one that will hold drilling rights if under production. You may want to call the the Office of Conservation in Shreveport to confirm this (Bob Grey at 318-676-7585).
By the way, I talked to someone at Chesapeake, and they plan to drill a good part of the east side of T16N, R16W along with your area. They are putting their money in drilling and have stopped almost all leasing. They plan to move fairly quickly to drill the new 17/18 unit when they get approval for the unit, but he did not give a timeframe. They have not applied for a permit yet. -
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Permalink Reply by SueBaby on
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Bud.
Would you know what happened at the pre conference hearding NOvember 24th.
We got a letter but really don't understand .
Seems there was some opposition, but nothing else.
Would you know what that opposition would have been.
Thanks for you help. You seem to explain it so I can understand. -
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Permalink Reply by Bud on
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The meeting was attended by about 25 people, mostly landowners in Sections 17 & 18 interested in the progress of things, when and where would drilling occur, etc. The only oppsition was from some landowners to the north (I being one), based on the precedent it sets for our area. They may hold a regular hearing, but I think forming the unit with Sections 17 & 18 is basically a done deal as I see it. The hearing may be held in Baton Rouge, but several folks stated the preference to hold in in Shreveport if one is held. If a hearing is scheduled, I am sure you will get a notice.
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