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Permalink Reply by Linda Whatley on January 20, 2011 at 8:25

Skip,

 

I don't know a whole lot about O&G, but what you say makes sense to me.   I wonder why Office of Conservation won't give their approval.  Appears to me that reconfiguration would benefit everybody. 

 

Linda

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Permalink Reply by Skip Peel - Mineral Consultant on January 20, 2011 at 8:33

There has been at least one prior attempt to accomplish this that I am aware of.  The operator was Petrohawk and the lessors involved, or at least the majority of ownership interests in the units, approved of and actively supported the application if memory serves.  The Commissioner denied that application based on no prior history of past approvals based solely on seismic data.  In other words the Commissioner was requiring further data which could only be generated by actually going out and drilling a horizontal lateral through the fault.  I am hopeful that the fact that the application has been placed on the hearing schedule again means that there is an improved chance for approval this time around.

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Permalink Reply by Linda Whatley on January 20, 2011 at 8:44

Like I said, I don't know a whole lot about O&G and the drilling process, and this might be a stupid question, but wouldn't it be more dangerous, as well as costly, to drill through a fault? ....

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Permalink Reply by Skip Peel - Mineral Consultant on January 20, 2011 at 9:02

Linda, I can't think of any increased danger in drilling through the fault other than formation pressures vs mud weight issues.  Once the throw of a fault (vertical separation of the formation on each side) exceeds the ability of the driller to steer the bit and remain in the targeted interval of the formation, there's no reason to continue drilling a lateral through unproductive strata.  Even with improvements in downhole drilling motors and the ability to drill tighter radiuses, it just doesn't seem to make sense to try and address faults through technology when it is simple and cost effective to just draw units to allow laterals of at least 4000' that drill up to but not through faults.  It is entirely possible that owing to the existence of natural fracture zones in the vicinity of faults, the wells drilled into those fracture zones could be exceptional producers.

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Permalink Reply by Linda Whatley on January 20, 2011 at 9:09

Makes sense that it would be more cost effective to reconfigure.   Thanks for explaining!

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Permalink Reply by Skip Peel - Mineral Consultant on January 20, 2011 at 9:17

There will be other instances where faults must be dealt with and those effected lessors should consider the benefits of supporting such oversize/odd shape units.  Hopefully we've reached a point where lessors understand the logic behind such units.  In the past many could not get past fears of dilution (decreased proportional unit participation).

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Permalink Reply by jffree1 on January 23, 2011 at 8:57

In the past many could not get past fears of dilution (decreased proportional unit participation)

 

How would they feel about not being drilled, at all, except vertically or with very short lateral horizontals?

And, how would a mineral owner go about showing support for this (reconfiguration)  with DNR? 

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Permalink Reply by Skip Peel - Mineral Consultant on January 23, 2011 at 9:16

jffree, mineral owners so affected would have to answer that question for themselves.  This is what I do know.  There are numerous faults traversing a large number of sections and therefore drilling units which potentially affect thousands if not tens of thousands of lessors.  Sooner or later all those units must be addressed in some manner in order for economic development to proceed.  If a precedent is set by the LOC for approving the type of application being discussed which includes the approval of a majority of mineral interests pooled within a unit, lessors have something with which to bargain.  If the LOC would approve reconfiguration of units based on relatively simple and cost effective measures such as 3D seismic data and affadavits of approval from a majority of unit mineral interest, 80 acre spacing could be continued (no reduction in the number of wells), economic lateral lengths would be possible (no short laterals drilled to avoid faults) and there would be no need to actually drill a lateral through a fault just to prove that it's really there.  My entire business is about finding ways to benefit mineral owners and this seems to me like a reasonable opportunity to do so.  If operators find a way to win approval for reconfiguring units without the cooperation of unit mineral interest, IMO a significant opportunity will have been lost.

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Permalink Reply by Skip Peel - Mineral Consultant on January 23, 2011 at 10:16

Jay, then you think it's an attempt to define the fault rather than to HBP?

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Permalink Reply by P.G. on January 23, 2011 at 10:57

Can a drilling vertical well into the haynesville shale produce a marketable amount of NG?

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Permalink Reply by Skip Peel - Mineral Consultant on January 23, 2011 at 11:23

Yes.  It won't be much.  And won't make an operator or a lessor happy as far as production or royalties go but it will hold the leases in force for years.

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Permalink Reply by Skip Peel - Mineral Consultant on January 23, 2011 at 11:02

I'm not privy to all the details of Petrohawk's application but I do know that lessors representing a majority of the unit acres in one or more existing units have decided to support it and that they will receive some consideration in return for their support if successful.  If there are no reasonable means to form or reform units to address faults, I think we will see more verticals drilled prior to lease term expirations to hold development rights.  There has got to be a better way to address this issue for the benefit of all parties.

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