Help out the Little Guy: Reserve your Shallow Rights!!

Once upon a time, before the Haynesville Shale introduced Northwest Louisiana to the concept of a resource play, the search for oil and gas was conducted by many smaller companies. These smaller companies would drill the more traditional prospects, looking for that hidden resevoir of oil or gas. Now, with the HA shale, large companies have aquired enormous leaseholds and effectivly push out the small independents.

I have watched as these small independents have had to go elsewhere in there search for mineral riches, as these large leaseholds by CHK, HK, Encana, etc. have locked up much of the availble land. These large companies do not want the little guy in there way, and therefore will not farmout to the small independents.

Very little attention has been given to the fact that one reason the lease bonuses rose so dramatically, was to drive out the small inpendents who can not afford to pay thousands per acre, especially so in a prospect that could probally end up in a dry hole.

Many on this site have opined that a lease bonus of $100 acre is ridiculas. That may be true for a lease that contains rights to a valuable resource play like the HA, but for a chance to have a well drilled to the hosston, bodcaw, nacotoch, tuskaloosa, smackover or cotton valley, it is sometimes all that can be justified. Especially so if the well is a wildcat, where the outcome is far from certain.

I have seen more prospects end in dry holes or worse yet non-commercial wells than good producing wells. These wells cost just a fraction of a HA horizontal well, but come with significant risk.

These large companies have no intention of developing these shallower resevoirs. Some companies, like CHK are not even loging all their wells!! Without logs, who knows what possible riches lie above their precious Haynesville shale.

For those who have already leased, it is too late. Maybe after time has passed, you may be able to get your shallow rights released, but it will be difficult.

Most mineral owners who where thoughtful enough to include pugh clauses will also be in the same boat, only the depths below the HA will be released automatically after the primary term.

I urge those who are still unleased to consider the following proposal:

Please withhold your shallow rights, to maybe lease those to someone who will actually develop those depths.

In the end, you may not see the life changing money that the HA might bring, but you never know what lies beneath your land.

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Comment by king john on July 2, 2009 at 3:24
KB, i only scanned the discussion, but i think he suggested people on assistance "pick up trash" rather than actually trashing them. lol
Comment by Aubrey C. Sanders, Jr. on July 1, 2009 at 11:08
Listen to The Baron. That is great, great advice. If I ever lease my land it will be for the one formation of interest only. I don't ever lease my land, but my friends and neighbors do. I always give them this same advice. As I pointed out in a posting earlier, Fina recently drilled a well in Haynesville Field where the lease was executed in 1919. This happens more frequently than most realize in these old fields. I inherited some land in Webster Parish which is currently held by a 1945 lease. I don't like the 1/8th royalty lease, especially now that XTO has 3 more locations staked on it.
Comment by Skip Peel - Mineral Consultant on July 1, 2009 at 10:48
Nice post, Baron. I concur. Especially if in reserving shallower productive formations, both smaller independent oil companies and mineral owners benefit. An excerpt of one of my recent posts on a group page follows.

"I have an idea I'd like to run pass you. I think it a reasonable response when a lease offer is tendered to ask what zones will be included. Each zone included in a lease should be assigned a value. Hoss/$250, Upper CV $350, Lower CV $500, HA $2500, SMK $750 as a rough example. Feel free to insert the known producing zones in Claiborne, or any parish. And the lessee can pick which they want access to and are willing to pay for. Pugh clauses are nothing new but unfortunately do not seem to have become widely recognized or utilized. As technology evolves and so the economics of investment and return in E&P, shouldn't the land/mineral owner receive a proportional benefit of each new dynamic? Much of the debate over the HS Play centers on "all depth" leases. The original bonus and royalty may look unfair now but were the generally accepted norm in their day. The rub concerns the value of the HS that those lessors will receive only a limited benefit from. A new generation of lease forms should be invented to secure a significant portion of any future appreciation of a mineral estate to the mineral owner. And should serve as a template that can be used in varying locales for the existing productive zones.
Comment by Coonman on July 1, 2009 at 10:17
GOOD POST!!
Comment by Keith Mauck (Site Publisher) on July 1, 2009 at 10:03
good post -

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