Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on February 16, 2012 at 4:56

How many mineral acres are you dealing with Joseph?

Permalink Reply by Colquitt Charlie on February 16, 2012 at 5:47

less than 100 net acres

Permalink Reply by Skip Peel - Mineral Consultant on February 16, 2012 at 5:51

If it's anywhere close to 100, engage the services of an experienced O&G attorney.  Depth clauses are complicated and must be worded carefully.

Permalink Reply by The_Baron on February 16, 2012 at 5:12

Joeseph,

 

Have you considered simply excluding the LSBD? You could simply state that "this lease specifically excludes the Lower Smackover as defined by (reference the depths and well used by SWN to define their Garret well's unit).

 

OR

 

Even better you could try to limit your lease to the zone they are drilling to. This is more difficult as many operators want the ability to complete in  a shallower zone if they see something they like.

 

 

Also, the pugh clause will not kick in after drilling. It kicks in after the end of the primary term, so using your example, you would not be able to lease the LSBD untill after the end of the primary, even if there was a SMK C completion.

Permalink Reply by Colquitt Charlie on February 16, 2012 at 5:49

thanks for your comments - all very helpful.

but i'm still curious about the issue of partial penetration of the LSBD - does that give the lessee the rights to develop the whole 300+ foot section? 

Joe

Permalink Reply by Colquitt Charlie on February 16, 2012 at 9:55

thx for the advice.      i do believe that it will require an "expert" to answer.   

and i also believe that due to the proliferation of SMK "A", "B", and "C" wells throughout S. Arkansas and N. Louisiana over the last 50 years, the answer could have profound implications as to whether the LSBD below these old fields (with Pugh clauses) is hbp or can be leased anew.

and i will post anything i learn

Permalink Reply by flex auger on February 16, 2012 at 18:40

There are lots of strange stories in the world of oil and gas i imagine but i would like to share one i know very well. This happened to one of my best friends and neighbors and was discussed at length on my front porch last summer. My friend has a nice farm of a few hundred acres and acreage here and there. His biggest plot was tied up under lease before the fayettville boom started, luckily he was on the fringes of the activity and they never got around to doing anything to hold the lease and it expired. Lease money by then had peaked at 1800 to 2000 dollars an acre. He is a go getter and soon had three (3) gas companies effectivly bidding for his 200 acres, on friday he dropped by and said he had a offer of 1800 and might take it, leasing amounts took a dive over the weekend and by monday he had one offer of 1000 dollars per acre. Dont get me wrong nearly 200 grand for a lease was good, but it was a long way from the 400 grand just two days before. He said he got greedy i tried to tell him he was just trying to get the best deal as anyone would have. I think those 2 days will haunt him a long time. When you get a good deal sometimes you need to be a good businessman and take it and not keep trying to tweek it into something its not, or it evaporates before your eyes. If they dont drill or skip you for some reason you wont never see a royalty check pugh clause or not. Get a good deal without all the drama  and dont hold things up to much just make sure you get paid for what comes out of the hole, who cares if its upper lower or sideways. Sometimes people outsmart themselves.

Permalink Reply by Colquitt Charlie on February 25, 2012 at 4:28

Followup question:   lease negotiations are progressing.  have been able to agree to desired Pugh Clause: i.e. rights after primary term restricted to 100' below "deepest producing interval" (as defined by State).  Dilemma - should the completion be made in the conventional lower Smackover series (say the SMK C) - which sits "just above" the LSBD, and should the 100' extension just "barely" penetrated the LSBD (say by 30 feet). does the operator own the "entire" LSBD - or just the top 30 feet.   

In other words, with rights to just the top few feet of an interval (the LSBD), can the operator later on commence the drilling of a horizontal LSBD well encompassing the entire 300+ feet LSBD section?

Permalink Reply by Herman (Chuck) Plonnigs, III on February 25, 2012 at 13:35

If an oil co. wants to bring in a play, in my opinion, let them. My primary concern w/re to a Pugh clause would be tying up viable formations, which are not of interest to an oil company, and tying it up for years. It has been brought to my attention on many a different occasion (by friends with thousands of “unsigned” mineral acres in HS), that 2008 is very/extremely unlikely to ever happen again so concentrate on the royalty end of the thing.

 

In other words if a company wants to produce the upper smack then decides in a while to bring in the LSBD more power to them!

 

Is this not the appropriate way to think of this?

Permalink Reply by Colquitt Charlie on March 1, 2012 at 11:59

i need a refresher on how an unleased mineral owner is treated (in Louisiana) if a well is drilled and successfully completed.  

Didn't the payout provisions change in recent years?

Permalink Reply by Skip Peel - Mineral Consultant on March 1, 2012 at 12:16

Not that I am aware of Joseph.  See Kat's excellent summation of the LA. Mineral Code.

UMI Basics by Caliente.doc, 80 KB

Make sure to Open it instead of Save it unless you intend to keep a copy on your computer.

Permalink Reply by Colquitt Charlie on March 2, 2012 at 6:29

Thank you Skip - very helpful.

Last question for now:  I need knowledge about "horizontal Pugh clause".  Seem to have surely read about it here a few months ago - but don't recall where.   Any chance you have info on it?

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