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Permalink Reply by dbob on May 31, 2012 at 14:11

Ken

A well might be able to drain more than 40 acres, or might require the ability to drain more than 40 acres to be efficient and cost effective.  

With horizontal wells, they may indeed get to Bob Franlin's 200 acres across the unit.  

If your property gets drilled and is included a unit with Bob Franklin, when Bob Franklin's property gets drilled, you'll share in the proceeds as well.

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Permalink Reply by Ken Boone on May 31, 2012 at 14:43

If his 200 acres gets drilled?? lol What if they never put another well in the unit on his 200 acres? Then what? Is that just to bad for my 40 acres of minerals that have been depleted? Somehow that doesn't seem fair.

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Permalink Reply by Dion Warr, CPL on May 31, 2012 at 15:42

Ken:

The answer is certainly dependent on what state is the property located. Laws vary that change the answer to your question. How the well is classified or the surrounding property is pooled or unitized also has a great deal to do with it.

If it's determined that the well effectively drains no more that the acreage upon which the well is located, and there are no pooled or declared units to contend with, you may very well be entitled to all of the royalty available from the production from the lease. This is effectively a LEASE well. As long as no spacing rules are being violated, you're fine.

If the operator or working interest owners have the ability to pool their leases (such as in a voluntary unit), your claim to royalty proceeds under your lease is generally proportionately reduced by the share that your tract contributes to the polled acreage or unit. For example, if the well is on your 40-acre property or Bob's 200-acre tract, and your leases are pooled into a proration or voluntary unit, either way, you are able to collect royalties based upon your 40/(40+200) portion of that pooled unit (thus, if you have a 25% RI, your share of production is 40/240 x 25% = 1/24 of the total production) payable as royalty.

If your land is force-pooled (LA) or integrated (AR) into a unit by force of statute and order of the regulatory authority, your mineral rights are forced into a "basket" in which you own a share of the undivided interest in the whole unit, much the same way as one would put everyone's apples into a bushel basket. If your 4 apples are placed into a basket of 100 apples, your ownership of the basket becomes 4% of the whole basket, subject to your contracted share - (25% of your 4% means you would receive the equivalent of the sale of 1 apple out of the proceeds of the sale of the whole basket). At that point, you don't have the option to figure out what apple is actually yours compared to everyone else, you just retain the right to receive your "just and equitable share" of the sale of the whole basket.

In a unit, who is getting drained and to what extent means nothing compared to your proportionate share of the total proceeds being "drained" or captured and reduced to possession. In LA, oil and gas molecules are deemed to be 'running around in all matter of directions' underneath everyone's land. When you (or your agent) capture the molecules per your "right to capture" as a mineral owner and reduce them to possession, they become yours, much like a deer that you shoot becomes your deer when you shoot him and capture him on your property. With minerals, where the well is located has less to do with possession than where the minerals are produced from, and then when your land is combined into a unit, in what unit are the minerals produced, rather than what property the well is located upon or under.

In LA, oil and gas is owned by no one until it is captured and reduced to possession. It's not a hard mineral that be located on "your place" or claim that is "in place" until someone unearths it on your place within your boundaries. Oil and gas is treated more like birds of the air, fish in the sea, or wild animals running across the land than a fixture on the land like a house, shed, or clod of dirt for that matter.

I know that this explanation may not make it right in your mind, but it's an attempt to make it make sense as far as how this is viewed.

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Permalink Reply by dbob on May 31, 2012 at 16:00

In terms of fairness, the field is probably tilted toward the oil and gas companies, but the rules and procedures, as imperfect as they are, are intended to help make sure minerals get developed and that folks can benefit.  Lets suppose instead of 40 acres, you have 35 acres and your 1/3 step cousin has the other 5 acres.  Your 1/3 step cousin realistically can't drill his own well without draining part of you, and you probably can't drill a well on your property without draining him.  In Texas, in most areas, you would have to get a lease line exemption from your 1/3 cousin to be able to develop that 35 acre tract.  Of course, if he understands he is going to be drained, he's probably going to want a piece of the action.  

Moving on, I don't recall the specifics of your situation, but if you are in the Haynesville or Bossier, and the first well in the unit is productive Haynesville or Bossier, the rest of the unit will get drilled at some point in time.  It may not happen in a timeframe meaningful to you, but if that unit has been de-risked, provided there is not some massive issue with endangered species or some such, it will get drilled and produced.  Its simply a matter of time and gas prices.

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Permalink Reply by Ken Boone on May 31, 2012 at 16:23

The well is in the Haynesville.

And I just was wondering why through the years, every single well that has been put in the section has been on my families 40 acres. Is there nowhere else to put them? Just want to know how they come to the conclusion on where to drill.

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Permalink Reply by GoshDarn on May 31, 2012 at 20:18

Ken, maybe someone in your family, years ago, signed a lease that allowed the operator/s to use the land for pads; whereas maybe your family's nearby neighbors had ironclad leases which stipulated that none of their land could be used unless the landowner was fairly compensated each time.

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Permalink Reply by dbob on May 31, 2012 at 23:56

Ken

If there are features that limit drilling in other locations, yours may be one of the best spots - high density housing, cemeteries, creeks, significant roads, pipelines, power transmission lines, etc can all limit in a unit where you might place a pad.  

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