Add a Comment

Comment by Ben Elmore on September 19, 2011 at 5:48

That is an interesting situation.  Under Texas law, EOG and Grenadier would be viewed as co-tenants, just like the lessors under their respective leases are co-tenants.  As such, any co-tenant can produce the minerals with the only requirement that they account to their co-tenant for the co-tenant's share of the minerals.  Using the EOG/Grenadier as an example, it sounds like EOG included its lease on the 50 acre tract in a unit and did not make it a drillsite tract.  As a result, Grenadier would not be entitled as co-tenant to any share of the unit well without ratifying the unit.  Grenadier would need to use MIPA most likely if EOG is not willing to cut a deal to include its lease in the unit.  As for EOG's right to a well Grenadier would drill on its lease, first Grenadier has a right to drill a well on its lease even though the tract is within the bounds of the unit, subject to spacing rules, etc...  If Grenadier drilled a well, EOG would share in its production as a co-tenant because again, they are co-owners of 50% undivided interest in the tract.  That is my initial gut reaction to the situation you describe.

Comment by Doob on September 19, 2011 at 4:16

The unit operator has drilled a well on the east edge of a ~600 acre unit. There is a ~50 acre tract inside the unit and the operator has a non-drillsite lease an undivided ~25 acres of that lease which is included in the unit but the other half interest in the tract is not included. If the lessee of the tract that is not included in the unit drills a well to capture their portion of the minerals not included in the unit, what happens to the mineral interest of the operator that is in the ~600 acre unit? I would assume they can't claim that their minerals are in both the 600 acre unit and the 50 acre unit.  I am interested in a Haynesville situation, but the same thing is at issue in the example of RRC Oil & Gas docket No 09-0262864 between EOG and Grenadier. If Grenadier drilled their interest on the "Bower Lease" would EOG have any interest in that well? It seems to me their portion of the undivided interest is included in the Whiteside unit.

Comment by Ben Elmore on September 19, 2011 at 3:28

Are you leased?  If I understand you correctly, a portion fo your tract is included in a pooled unit and is a non drillsite tract in that unit.  As to the non-pooled portion, yes, you can drill a well on that portion (or your lessee can).  I  don't quite understand your question about a non-pooled interest getting in the way of development.  Is it an unleased interest?  In general, operators can change the unit configuration, but they risk getting sued.  Most operators will get written consent from the pooled participants.

Comment by Doob on September 18, 2011 at 12:56

Concerning (not) pooling an undivided interest in a non-drill site tract…

The Haynesville units are being formed in anticipation of multiple horizontals. A
unit can be held together with a single well frequently on the edge of a unit,
and cost and revenues shared among pooled participants. If in the future an
operator deems that a tract with non-pooled interest is in the way of optimal
development can they change the unit, and what would happen to historic revenue
and expense with changed participation?

The RRC contends that a non-pooled undivided interest can protect their minerals by
drilling their own well. But how can that work if the pooled portion of the
undivided interest is receiving revenue from their portion of the tract? If we
as non-pooled undivided interest in a non-drill site tract decide to drill in
that tract, how are the other undivided interests treated in that tract if they
are already in a unit? They can't get paid for their share of oil and gas twice
can they?

 

Comment by Ben Elmore on February 17, 2011 at 15:25

The umo can drill his own well, sign a lease or ratify the unit, or seek protection under MIPA. That's the status of Texas law.

Comment by Nacman on February 17, 2011 at 7:25

As a follow-up, how does the UMO under the rule of capture protect its interest?

Comment by Ben Elmore on February 12, 2011 at 3:14

Rule 37 only applies to the physical location of the wellbore, not the distance the proppant travels via the frac.  In fact, our Texas Supreme Court recently held that a frac that extends across lease lines underneath acreage not included in a unit or leased by the operator is not a trespass.  See Coastal Oil & Gas v. Garza Energy Trust.  They held it was simply an application of the rule of capture.  They departed from 100 years of case law on the subject.  So yes, an operator who does not apply for or fails to obtain a Rule 37 exception, can place its horizontal drainhole in a legal location within the spacing requirements, but frac close to the UMO  lease line and draw hydrocarbons from underneath the UMO land.  The Supreme Court simply says it is up to the UMO under the rule of capture to protect its interest.

Comment by Sarah on February 11, 2011 at 21:34

Wow. Thank you for writing this!  I think this is happening to me. (the being drained part without getting paid.)  I appreciate all that you said here.

Comment by Skip Peel - Mineral Consultant on February 7, 2011 at 12:14

Thank you, Ben.  I commend your ability to convey the meaning of the statutes in such a way as to be understood by a layman.  I find the Texas mineral code to be arbitrary and punitive in it's regard to the rights of mineral interests affected by these two statutes.  And although the LA. Mineral Code is considerably more favorable in it's treatment of UMO's, both states need to to perform a thorough review of the applicability of mineral codes as they relate to horizontal drilling and hydraulic fracture stimulation.  The Haynesville Shale being the first major play in an age of wide spread Internet participation by private mineral owners can, and should, have the effect of bringing regulatory and legislative scrutiny to these issues.