Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on August 15, 2012 at 8:07

Dion, then there should be some definition or requirement to pursue production within a reasonable time period as an extension to the primary term.  The 100' below deepest depth drilled is too open ended without a commitment to explore and produce IMO.

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Permalink Reply by Dion Warr, CPL on August 15, 2012 at 9:52

Skip:

For purposes of debate and discussion, what would be the degree of difference between holding a formation capable of production below a certain formation after the end of the primary term (or some mutually agreeable point thereafter) versus holding any formation above the current productive formation (or deepest formation produced) during the same period?

 

Certainly, just as there are many landowners that were "locked out" of the initial shale leasing by virtue of being held by shallower production under "all depths" lease provisions, there are now many landowners that are held by Haynesville drilling and/or production that are prevented from entering subsequent agreements with any other potential lessees that may be interested in shallower exploration activities as a result of these "improved" provisions.

 

Obviously it is easier and more cost-effective to squeeze and reperf uphole rather than deepen or sidetrack an existing hole to a deeper depth.  But setting a removable bridge plug and producing from a slightly uphole formation until it makes good operational sense to remove same (e.g., depletion of the uphole target and/or drilling of an SWD well) and then produce the lower target would certainly represent good-faith on the part of the operator to explore and test the wellbore down to TD (which they spent the money to drill to).  Shouldn't they be able to earn the right to earn and/or produce that depth?  What gives the "deep hole" driller a preferential right to hold all depths down to the deepest producing zone and subsequently recomplete uphole whenever they deem it reasonable and prudent at some point in the future, other than said driller operated and produced at a deeper point??

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Permalink Reply by Skip Peel - Mineral Consultant on August 15, 2012 at 9:59

Dion, okay.  Please define reasonable and prudent.  Just kidding.  Good points but you know where this discussion is headed, leasing by specific formation or depth definition.  Or releasing all formations in a wellbore that are not being produced after expiration of the primary term. regardless of depth.  I like the depth produced wording owing to pilot holes. 

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Permalink Reply by Joe Aldridge on August 15, 2012 at 10:48

Thanks guys. GREAT discussion!!!!!!!!

Permalink Reply by GoshDarn on August 15, 2012 at 12:11

Joe, I'm kinda surprised you haven't mentioned the word "zonal." (Ahem.)

In any event, this "landman" debate should be a cautionary tale as to why Annette truly needs the services of a competent O&G attorney.

GD

Permalink Reply by Joe Aldridge on August 15, 2012 at 12:47

GD,

My problem with most attorneys is: They don't understand geology and the new drilling techniques. The "100' below the deepest depth drilled" is now considered a standard clause and is included in most leases that have a depth Pugh clause. With the new drilling techniques a productive shale may be in contact with a productive formation up hole and be within the 100' grace window. That to me creates a problem. I think a land/mineral owner should be aware that the "standard" clause may create a problem that most attorneys and industry people accept as "standard".

Personally, I like a stratagraphic lease. That's hard to negotiate though. Especially, when the area is just opening. I think if things were "HOT" in an area for a specific formation then that might be a possibility. 

Permalink Reply by Dion Warr, CPL on August 15, 2012 at 13:36

GD:

 

Based upon your comment, I would think you were an attorney.  (lol.)

 

Honestly, the purposes of the debate was to explain that such discussions can be contemplated by any competent oil and gas professional, with or without a JD, based upon specialized experience and the facts on the ground.  You can have an attorney that knows no more than what their "buddy" tells them about what to include in an oil and gas lease; the fact that they're a licensed attorney says nothing as far as credentials, other than fluency in legalese and a right to practice law in their state(s) of licensure.

 

If you are looking to hire someone to practice law, one should (legally, they must) hire a licensed attorney.  Period.

 

As long as the landman is not engaged in the unauthorized practice of law as defined in the relevant statutes and discloses that he is not an attorney and should not be relied upon for legal advice, having a landman represent you for oil and gas leasing negotiations and/or provide other relevant services is not breaking the law, and it is not bad business.  Landmen are considered to have a specific expertise in what they do; further, landmen are much more likely to understand what is reasonable and customary in the oil and gas industry (a basis upon which industry specific terms and practices are adjudged, even in contract law).

 

As a matter of practice, even for those individual owners that are represented by counsel, it is quite common for a competent landman and their counsel to engage and discuss specific provisions in the lease, and even to construct clauses provisions to the mutual satisfaction of both parties, without the landman having his client's attorney looking over his shoulder.  This is not the realm of "leasehounds" and "warm bodies" that many individual landowners met during the initial lease-up in the big land plays, however, nor should it be engaged in casually by the uninitiated layman, regardless of experience.  In fact, one of the most dangerous things that someone could do with these agreementsis attempt to craft one themselves by cut and paste of "the best clauses that they can find".  If they don't work seamlessly to cover the range of issues in a comprehensive and cohesive manner, the conflicts and ambiguities could work to make the entire agreement ineffective.

 

Permalink Reply by GoshDarn on August 15, 2012 at 13:38

From get-go (back when you first logged on GHS) -- you've always brought a good bit of "savvy" to the discussion, Joe A. (even though there was at least one person who sorta wanted to gag your "savvy," in a way).

Be that as it may, here's a philosophical perspective. 

Unless I'm missing something, the concern here is only for the multiple-lease issue, in that a heavy-hitter landowner -- with good savvy -- should be smart enough to nail down all of the "other" favorable Exhibit A addendum clauses, which means that once there's any production from any formation from any level -- the royalty and associated land-management/well issues will be positive per a good lease.

Ergo, the formation targets really come down to the bonus money.  That's the true issue.  In other words, if a sharp landowner truly does his/her job and has good counsel and sits across the table from a motivated lessee -- then limiting the first lease to a specified target is a concern over the bonus money.

Now, as you know, per the particulars of the AC (and even the TMS, etc.) -- the bonus negotiation scenario is stuck in low gear, so to speak.

Thereupon, if the described hypothetical negotiation as to the stratigraphic wording does kick in, and if the bonus money stays relatively low, then it becomes a concern over the number of acres involved so as to make the stratigraphic wording a deal killer.

In other words, humor me -- but in the grand scheme of things, since the bonus money doesn't seem to be moving up very much (more or less) . . . and since there sorta seems to be a general consensus to lease, if one can even get a decent lease offer, then in the general bonus window (as it stands now) . . . the haggling strategy boils down to acreage.

Those with enough acres will have a reason to hold out (possibly).  Conversely, what's the real gain of doing so at relatively low bonus per acre?

In other words, if all of the other addendum clauses remain the same with a well-negotiated favorable landowner lease -- the why of stopping the leasing over a relatively small amount of bonus money is kinda puzzling.

Then again, if a landowner honestly thinks that the bonus per acre will eventually -- one day in the distant future -- get up into some serious money . . . well, true, I can see why there would be a need to fight hard over such.

So, in truth, it's really all about acreage, in my arms-length opinion.

The bigger the spread; the bigger the fight.   

 

 

 

Permalink Reply by GoshDarn on August 15, 2012 at 13:53

I agree with you, DW.

Yet it should be noted that the lady specifically asked about a Texas attorney, and that's certainly her prerogative.

Plus, I (and a few other sorta "educated" landowners) -- did not simply advise her to get a "common" attorney.

No, we specifically advised her to get a good O&G attorney and also specifically recommended Elmore (whose credentials outshine the common Joe's and who seems to have frequently proven his worth over and over again on GHS).

So, yes, I understand your hypothetical and your loyalty to your fellow landmen (and your good reputation on GHS for taking the time to give insightful opinions over complex issues).

Indeed, like I've mentioned before, I've always found you to be honest and trustworthy, Dion.

Now, on a sidebar, if the lady had asked about La. -- then there is, in fact, a competent landman/lawyer (yes, all rolled into one) -- who's also a member on GHS.  And that particular member also offers some insightful advice, being as he has both bases covered (so to speak).

So, we agree, DW.  Good advice is good advice.  It's just knowing whom to trust and who is working for whom, that's all. 

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Permalink Reply by Dion Warr, CPL on August 15, 2012 at 18:48

GD:

I'm fine with Annette seeking advice from an O&G Attorney specializing in TX. My point was to advance a discussion that presented itself between the somewhat different takes of Joe, Skip, and I. Unfortunately, Ben was not present for comment on the topic.

My reflexive angst about "you need a lawyer" still touches on a raw spot that was initially open four years ago with the advent of the "Haynesville Shale lawyers" (not that Ben has ever been one of these) that hung out their shingles and crafted their special lease riders just in time to earn some bonus percentage and override from their "Haynesville clients".

The term still kind of irks me; in my view, you're a mineral law attorney, or a general practice attorney with an oil and gas specialty or expertise, and if that's what you do, that's what you say that you are, not a "shale lawyer". The very term seemed as silly a title as, say, a "trailer plumber", or a "porcelain tile setter".

But I'm rambling... Off topic... I'll quiet down now...

Permalink Reply by Joe Aldridge on August 15, 2012 at 4:44

Dion,

Thanks for the feedback and the explanation of the depth clause. I think input from various parties is helpful in trying to sort out the best way to try to incorporate clauses that will be effective to protect the mineral property. Again thanks for your response.

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Permalink Reply by Andrew on August 15, 2012 at 22:52

At the risk of complicating the discussion, a Pugh clause can work against you. Take the TMS for example. Few, if any, lessees are giving more than a 20% royalty. However, those people who are HBP in the lower Tusc or in a shallower formation at a higher royalty will get that higher royalty on their TMS unless someone releases the acreage. So those people may be missing out on a couple hundred bucks per acre, but they're getting a few extra percent that could be far more valuable in the future. I know some people who have a 30% Haynesville lease that They specifically declined to Pugh, because They wanted that royalty on any producing formation. Now that HZ cotton valley has rolled through, They're happier with their extra royalty than the bonus they would get.

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