Replies to This Discussion

Permalink Reply by w.r. frank on April 20, 2010 at 14:39

The next real legal battle, IMO, will be over the "duty to develop," relative to 640 acre units and HBP. One well can hold 640 acres, but the operator has a duty to develop. If NG is $6/mcf, is it a valid legal excuse that 1) I am too busy with other wells, 2) I don't have the rigs, or people, or capital, or all of the above, or 3) I have too many acres under lease (even if a 100% HBP)?

If I was in a section with 15 mmcfd IP wells and my lessee was not proceeding with an orderly development of my property, I would be consulting an attorney about the duty of my lessee to develop my property.

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Permalink Reply by Kat Bloomfield on April 21, 2010 at 1:41

I agree. Indeed, I think that's what the suit is about, really.
Notably, and typically, it will be a large landowner, such as a timber company, who'll take this one; but it will quietly settle.

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Permalink Reply by Bobi Carr ("parker") on April 21, 2010 at 8:26

Caliente,

Hmmm. Dissolution of the unit does not change ownership of the minerals. But, it does change equitable distribution. I would expect that any dissolution order would have to take account of the equities and redistribute accordingly.

If the units were in question of being disolved, it only seem reasonable that the royalties be held in escrow until the suit is resolved.

I notice that Mr. Walker has not commented on this possibility.

I think it could end up being an issue that many wouldn't want to be involved in if this is the case.

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Permalink Reply by Dion Warr, CPL on April 21, 2010 at 13:28

Good point Bobi. I wonder what happens if and when it is time to redraw the units, and each and every mineral owner has to look for themselves as to whether an adjacent well that has been frac'ed may or may not be draining their reserves.

Even if Plaintiffs prevail, I'm not sure what that does to units already formed an in production. Do the mineral owners that are suddenly "cut out" of their dissolved and redrawn units (or pooled units) become subject to a clawback of a certain effective date? Do we go back to operators proposing gerrymandered units based on their leasehold?

If we've noticed, TX landowners have generally received less in bonus consideration on the whole than LA landowners (at least in the first phases of the boom period), because mineral owners could not be 'cut out' of units. Lessees had to lease as much as possible to establish position to drill and operate units and wells. What impact would such a change have on those values?

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Permalink Reply by Kat Bloomfield on April 24, 2010 at 0:22

Bobi--wouldn't a more reasonable solution be a fair and equitable distribution because that's what the law requires? Escrowing royalties, while an oft abused tactic of the industry, isn't per se reasonable based on the legal challenges raised by this lawsuit as the lawsuit isn't challenging o/s.

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Permalink Reply by Andrew Walker on April 22, 2010 at 4:49

Sorry for the delay in commenting, Bobi Carr, but I've had an incredibly busy week. I am one who got "ripped off" in my lease with Chesapeake. If this lawsuit will give me a chance to renegotiate I'll have to seriously consider signing up. Patience is a virtue.

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Permalink Reply by The_Baron on April 22, 2010 at 9:14

and there it is...... just another disgruntled landowner.....


Something else that has been overlooked is what effect would be on the servitude owners who would suddenly have prescription begin anew should producing units be disolved or redrawn.

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Permalink Reply by sesport on April 22, 2010 at 16:14

Awww, c'mon Baron, do we have to "go there" again ... STILL ... with the "disgruntled/greedy landowner" and "evil O&G" slapstick & baseless accusations. It's been going on for almost 2 yrs. now, getting old. 80P

As for the effects on units, is it possible that what's already established could be "grandfathered?" I don't know, not as experienced with this stuff, so I'm just throwing an idea out there. When the setback was changed for interstates after the I-10 incident, what were the results as far as prescription & redrawing the units? Is it even the same? Again, I'm just throwing out some thoughts.

80)

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Permalink Reply by The_Baron on April 23, 2010 at 4:09

First, it is obvious Mr. Walker is trying to bust his lease.

Second, He is challanging in Court the units established. when the Supreme Court ruled that Segregation was unconstitutional, did they say that kids in segregated schools would be grandfathered in? No. They ordered the situation to be fixed as soon as possible.

Third, The setback from interstates had NOTHING to do with unitization. There currently is no serious setback, only a requirment that the be shown on location plats and some regulations about distances from elevated crossings of waterways. (See http://dnr.louisiana.gov/cons/memos/memo20100112-policy-elevated-in... ).

Fourth, if a tract that has part or all of the servitude interupted is cut out of a unit, prescription will begin to run anew. I would be concerend as a mineral owner if I not only lost my royalty check, but had to worry about getting a new well drilled.

I believe with horizontal drilling that large units benifit the operator, and the mineral owner.

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Permalink Reply by sesport on April 23, 2010 at 12:00

Baron - Mr. Walker said he'll have to "seriously consider signing up." Hasn't happened yet, and he argues several points other than that one.

As for the comparison to public school desegregation, that's apples to oranges IMO. That challenge & decision was, in part, about the equitable distribution of tax/federal funds. This petition is about private business deals. If the business partners want/need a change in the regs, they're free to attempt to get these changes. I still think a "grandfather clause" is plausible.

Now, as I've said I am much less experienced than some here, including you. And I'm very, very appreciative of the info you've provided on the business of production. One other question ... being that this is a "new day" in drilling with new technology & strategies, such as horizontals, I respectfully ask how it best serves mineral owners if one well per unit is drilled to HBP a large unit, allowing the operator to move on to another unit and repeat the HBP process? Throwing out another idea ... wouldn't it be more beneficial to lease, drill & bring online units such as the ones Mac Davis describes? Operators wouldn't have to run around trying to drill before primary term expires during downturns in ng prices.

thanks for sharing your thoughts 80)

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Permalink Reply by Spring Branch,mineral owner on April 23, 2010 at 12:36

Who would benefit if the standard lease form became a 10 year lease as a result of no Operator wanting to lease any more 80 acre tracts than it could reasonably drill in 3-5 years in the shale plays? I think in the Marcellus, a ten year lease is not that uncommon. Or how about a 20 year Oil & Gas Lease, how does that sound to you?

Permalink Reply by sesport on April 24, 2010 at 2:23

SB - I'm not understanding what you're asking with that concluding question as it relates to the forming of units. Are you saying that the state regs also dictate the terms of the lease in the clauses detailing the number of years the contract is in force? Again, I'm an inexperienced Everyday Joe, my understanding is that the number of years is a negotiable clause between the parties involved and that the state has no hand in that. Please clarify this if I'm wrong.

thanks 80)

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