landowner

$500.00 check from Audubon Oil & Gas for drilling on the section next to mine?

Jack's 20 acres of HS land is in a section corner. (section 21  T10N   R11W)

A man from Audobon Oil & Gas called Jack Blake today and wants to give Jack a check for $500.  He says it is because they (SWEPI) are drilling a well on the section next to me and the wellbore will go under our land at some point, but it will be perforated in the section next to me.

SWEPI already drilled a well in my section and the guy from Audubon said they got the bordering land owners to our section to sign these agreements for $500.00 each.  He says it doesn't matter how much land you have they pay only $500.00 for this.

He said they do this to get the maximum production from each unit.

He kept saying signing and accepting the $500.00 is the "neighborly" thing to do. 

Jack asked the guy if Jack would be offered more if he waited and the Audobon guy said if you don't sign, they just kind of redesign the well bore to not go under your land.

 

The guy wants to get Jack to sign within the next several days.

 

What should Jack do?

 

Thanks,

Jack Blake

 

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Replies to This Discussion

Permalink Reply by Linda Whatley on October 12, 2010 at 7:47
I also think "our" Jack likes to watch "Becker"........

landownerPermalink Reply by Dorcheated A1 on October 12, 2010 at 8:55
The same thing I'm thinking.lol

landownerPermalink Reply by Checkmateking on October 12, 2010 at 5:53
Thats pretty much an insult to handicapped persons.

landownerPermalink Reply by RONNY on October 12, 2010 at 8:57
A man should be able to make fun of himself without worrying about the politically correct police. JMO
StevewPermalink Reply by Stevew on October 12, 2010 at 20:09
Hi JB,

Good luck with your decision. There is a lot of advice on this thread. Personally, I like the professionalism of Skip & Baron, plus others. I don't think those guys/gals would steer you wrong.

This is very complex and your lawyer might end up costing you more than it's worth. I am certainly not an expert, but both Skip and Baron are. I've been impressed with their post over the year or two I've been on GHS.

Henry's idea of trying to get a map might be good. You could post it here for people's ideas (except then we would all know where you lived and come over for dinner)

PS: I agree with Ronny: "you are the man who HOWLS for everyone to do well in the Haynesville Shale". I appreciate your good energy for natural gas! You are a real good man and I hope this goes well for you.

Logger
Permalink Reply by Linda Whatley on October 13, 2010 at 2:50
Well said Logger..... dinner at Jack's house, now that would be interesting.

landownerPermalink Reply by Robert Griffin R on October 13, 2010 at 3:03
Jack,
Please keep in mind the fact that the "extraction point and associated piping, valving, water storage, access roads, truck traffic, pipeline, etc., etc., etc., will remain on your property "forever." Also, every single cubic foot of gas removed from this well or any addional wells drilled from the same pad for the added financial benefit of your neighbors will pass up and out through a pipeline on your property "forever". The increased financial gain your neighbors will enjoy as a result of a longer lateral is primarily because they are using your land "forever." Disregard the "neighborly" rhetoric and think of this as strictly a financial business transaction. Be assured that your neighbors would think only in business terms if you wanted an entry point in their unit. Perhaps consider a 99-year or perpetual lease for a good initial bonus and a good guaranteed monthly rent for as long as the well apparatus in on your property whether the well is producing or not. When the well is no longer producing they will still compromise the value of the land with the unused well apparatus and pipeline. Best of luck.

Oil & Gas ProPermalink Reply by Dion Warr, CPL on October 13, 2010 at 5:46
Robert:

Based on the information given above, Jack is talking about a subsurface easement allowing the wellbore to pass through (or beneath) his property on its way to the perforated lateral in the adjacent section. This would not be equivalent to a surface lease or surface easement, with all the associated surface use and disruption that you describe. For all intents and purposes, what Jack is describing is an agreement in which the O&G company is obtaining permission to 'pipe' underneath his property (subsurface) to the producing interval of the well (not including his property), without all of the inconvenience of trenching up his property to do it (as the directional bore is located two miles down). As long as it is made clear that the agreement is not a pipeline servitude and does not include the use of the surface in any form or fashion, I fail to see the point of the scare tactic.

I do, however, agree with your disdain of the somewhat hokey 'neighborly' tactic. It confuses the issue in an unseemly way so as to inspire a certain amount of guilt in contemplating the agreement: this is less about a neighbor asking another from across the way to borrow a cup of sugar and more about the company's desire to optimally develop the minerals of a neighboring section to the benefit of both themselves and the royalty and working interest owners in the adjacent section. Would you want your neighbor to grant the same rights if the situation were reversed - sure, but based upon the logic submitted by the negotiator, Jack's refusal would not create an impasse so as to deprive his neighbor of receiving any proceeds anyway - it may just make for a slightly lesser well.

Personally, I feel that granting a subsurface easement in the broad scheme of things is a relatively minimal request, as long as the terms and intent are sufficiently restricted to a specific purpose: "[You] get a non-exclusive right to go [here, see Exhibit A] underneath [my land] to drill and complete [this well] only as long as the well is completed by [drop date], such right to expire [short time] after [this well] fails to produce [in paying quantities]." But I don't know what goodwill (or shenanigans) have transpired between Jack and the company, or how much Jack can (or wants) to hold X company's feet to the proverbial fire. If the same company would be developing Jack's minerals and those of his neighbor, I would particularly want that company to feel that I am willing to grant them every advantage (so that its representatives would feel equal goodwill or obligation to do the same for me).
Permalink Reply by Linda Whatley on October 13, 2010 at 7:28
Gosh guys, I'm totally confused now........... so which one of you is right on this issue??
Maybe Barron can shed some light on who is right, and who is wrong.......

Oil & Gas ProPermalink Reply by Dion Warr, CPL on October 13, 2010 at 8:48
Linda:

A wellbore easement (or a subsurface easement for the purpose of drilling a well) is generally what the O&G companies are looking to utilize to extend the perforated lateral length to its greatest extent, which in general is 4,620' (being a mile or length of the section less 330' from each unit boundary (the typical offset from each unit boundary). Horizontal wells inside the section generally are encumbered 200' - 500' from this figure due to the length required to build the radius when kicking the well from the vertical wellbore to the horizontal direction (or the lateral). Laterals are currently being fraced in multiple stages, with a frac stage approximately every 300'.

Thus, if the company utilizes a surface location outside and adjacent to the section and drills into the section, the operator can obtain another frac interval or two, which generally translates into higher production. In order to do so however, the operator must (1) obtain a surface lease location outside of the parameters of the existing oil and gas lease, since with Pugh clauses, the production from the adjacent unit(s) will not hold the lease outside of the unit and (2) obtain subsurface (wellbore) easements from any landowners which the operator may have to "drill through" in order to connect the vertical wellbore to the intended production unit (otherwise, it is a subsurface trespass). Since the well will not be perforated under the owners of the subsurface, this does not generally burden the mineral owner.

The burdens to which Robert is referring (extraction point(s), piping, valving, water storage, etc.) is generally associated with the owners of (1), not (2). These functions are almost entirely associated with the lessor of the surface. The owners of (2) are granting rights which typically extend hundreds, if not thousands of feet below ground, far removed from such consequences. Subsurface wellbore easements generally do not include access or other surface rights.

Thus: if the operator wants to construct a well pad (with associated equipment and surface appurtenances, rights to lay pipeline, etc.), one would generally obtain a surface lease, which would typically include an upfront payment and continuing payments for the duration of the lease. A subsurface agreement would generally be taken in the form of an subsurface easement or servitude, and would incur a 'one-time payment'. I would never say 'never,' though, and it is entirely possible that an agreement subject to a recurring payment or renewal exists; I do not have one that I can readily produce, however.

In your situation, Linda, it could be possible that you could (or have already) been approached for such an arrangement based upon the size of your tract and proximity to other units. In your situation, the company would probably want to exploit both surface and subsurface rights. In this regard, as these types of operations would employ use of your surface and subsurface to access adjacent unit(s), you would be more likely to enter a 'rental' arrangement (again, my non-legal opinion, the use of your subsurface is minimal compared to the continuing use of your surface).
Permalink Reply by Linda Whatley on October 13, 2010 at 13:05
Thanks for all the info, but I am not a surface owner, I only own mineral rights...... but what you are saying makes sense to me. Thanks for the clarification. ..... I'm just a novice when it comes to o&g, anybody wanta talk about consumer protection regulations in the banking industry??? ........ lol

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