Replies to This Discussion

Permalink Reply by adubu on July 18, 2013 at 11:27

Ben--you say it ain't easy to be "unleasy in Texas" this is one time you can" be leased yet be unleased"-- you are very helpful as usual-- THANK YOU FOR YOUR TIME and Education to all members of this site for this issue of discussion will come into play more and more with H wells lateral needing long lateral into old vertical well units. It's good to know what could happen to mineral owners.   Also I thank Skip, Dion, and Buddy for their replies.  

Permalink Reply by Ben Elmore on July 19, 2013 at 3:28

True adubu, but in the situation presented, A's lessor is being treated as unleased by B. 

Permalink Reply by Buddy Cotten on July 17, 2013 at 18:41

Long story short is this.  If the 24 acre tract is non drillsite and not leased to the Operator, the mineral owner has not much of a leg to stand on.

Texas has 5 types of units.  Only three affect title to royalties.  The voluntary pooled unit (which can be accomplished several ways), a cooperative agreement (field wide unitization for enhanced recovery operations) and forced pooling underneath the Mineral Interest Pooling Act.

To talk about MIPA for 2 seconds, the  burden of proof of drainage is on the mineral interest owner to prove drainage.  That is a long, very expensive process out of the reach of 99.99% of individuals.

The next concept is it even practical to go unleased in horizontal shale plays in Texas?

There is no equitable pooling in Texas. A tract or interest not in the drillsite, but within the drilling or proration unit, is not entitled to share in the production as a matter of equity pursuant to judicial decree, even if these lands are used for allowable purposes.  To allow equitable pooling flies in the face of the Rule of Capture.

Skip, if you want to be pooled, you must have a pooling transaction.  A contract.  An agreement.  Such as signing a lease with pooling or ratifying the pooling agreement/unit declaration.

As to the production in the 24 acre unpooled tract, it goes to the Operator. Tough concept for most people.

This all applies if the 24 acre tract is unleased, leased to another (who has not joined) and the well and its laterals are at a legal location or they have an exception to Rule 37.

Best

Buddy Cotten

Mineral Manager

Permalink Reply by adubu on July 18, 2013 at 1:03

Buddy--- what is cost for company A who has leased the minerals in the 24a owners (several people of undivided minerals different%) (which is part of a 450a unit that is HBP with a producing well) to put these 24a in Operator B shale unit? Why would he refuse? The 450a unit that Company A has is not configured for a economical N/S lateral to drill a deeper H Shale well. So the deep rights most likely then could never be produced unless A agrees to pool with continuous unit that drills deep shale well. If A put their 24 in unit would they pay R to mineral owners or Operator B ? Since 24 is on border of plat they would never be a drill site I would not think. Does mineral owners leased to A have any choice or they just simple screwed if A does not agree-- why would a PO not agree to put the acres in the unit--I guess he would be WI in the 24a if he did

Permalink Reply by Skip Peel - Mineral Consultant on July 18, 2013 at 1:37

Thanks, Buddy.  These Texas mineral law discussions always make me appreciate  the Louisiana Mineral Code.

Permalink Reply by Dion Warr, CPL on July 18, 2013 at 8:06

Skip:

You mean the Mineral Code that was just changed last year to reduce non-consent penalties on alternate and cross-unit wells?  (Insert filth-flarn-filth here)...

 

All kidding aside, to add to the larger discussion, why would a lessee/operator of a shallow well and lease refuse to deal with the Haynesville operator?  It usually comes down to risk vs. return on investment.  Pooling the lease and consenting to the applicable agreement would immediately put A on the hook for his proportionate share of the drilling and operating costs, which A may not have on hand, or may not be in a position to risk.  The next logical step would be for A to deal with B on some sort of assignment of rights, farmout or otherwise.  Consideration for such agreements are usually cash, contribution, override, a reversionary interest of some type, or some combination of the above.  At $13 gas, smaller operators and shallow well owners could easily make deals with Haynesville operators - sales and trades made with cash and overrides could be amply funded based upon projected payouts at that time.  When gas prices retreated to a point that the economic viability of those operations fell into doubt and cash was short, those deals could not be brokered as easily, and in some cases dried up entirely.

 

In Louisiana, forced pooling actually started to work against smaller operators with WI exposure in Haynesville units, in that Haynesville operators could used the forced pooling statutes to squeeze the smaller operators to assign rights for peanuts, pony up costs for potentially non-economic wells or go non-consent and still pay royalties to, or invoke the wrath of RI owners not getting paid.  Hence the statute changes, a la brokered deal between big gas, mom-and-pops, LOGA and Sen. Adley et al.

 

In Texas, the climate was much the same, except that operator had the option to gerrymander the unit so as to exclude the non-consenting interest(s).  However, for lessors and lessees excluded from such units, the picture is very similar with respect to LA owners - prospects of no royalties from operations most likely impacting their interest(s) and no one to look to except the lessee and his duty to drill and develop, and lessee(s) struggling with raising the higher levels of capital necessary to drill and develop in the Haynesville with possible non-economic results, poor chances for fair trades with the operator, while trying to act as a prudent operator and fulfill the duties and obligations to the lessor under the terms of their leases.

Permalink Reply by adubu on July 18, 2013 at 8:45

Dion-- so in your opinion  what should smaller operator A do if offer of something but not the greatest from B or if B never offers anything and just takes the 24 in the new Shale unit??

Permalink Reply by Dion Warr, CPL on July 18, 2013 at 12:01

Adubu:

Well, where you are (TX) the operator cannot "just take the 24" without an agreement.  You may be able to push A (WI owner in the 24) legally as has been pointed out by Ben Elmore which may induce them to "find a deal" with B, but as your right of capture is vested to A per the lease, your remedy still lies with A.  Any attempt to break your relationship with A (even in part or as to undeveloped strata) is likely a steep slope to negotiate (and that is probably an understatement).

 

If A has HBP'ed the 24, there is not much outside incentive to just "handing over the lease" or trading with the lease - the lease is being successfully worked.  But is it being "fully worked"?  That may be a point that can be wedged open by the lessor with the lessee, and what I believe Ben is pointing to.  Otherwise, A just has to pass the muster of a reasonable and prudent operator - pouring money into a possibly marginal endeavor without much to show for it other than paying you royalties is not really reasonable or prudent.

 

Another option is to locate some other desirable asset of mutual benefit for each party and make A's interest in the 24 part of that trade - but that generally happens at the level of A & B, not you or the 24.  If you had something of interest to facilitate the discussion - now you may be able to contribute to that discussion.  However, without some other sea change, A, B and the 24 will probably fall into the file labeled "asked and answered".  Once the well is drilled by B and the spacing pattern is set to avoid the 24, your odds go from slim to virtually none.  Alternately, if you had something that A has been pursuing in addition to the 24 they already have a lease on, you could provide means of a favorable trade provided that A work with B to get the 24 into the unit or pool.

 

These are just ideas; honestly the 24 may just be bypassed.  In the broad scheme of things, if A & B don't look upon this as a big enough deal to them, it'll just stay as is.

Permalink Reply by adubu on July 18, 2013 at 13:52

Dion -- these units are just in surveying stage. Knowledge gain of fact since they needed us the land owners ok to survey across land. I ask enough questions to get some details. Some of your suggestions I have already began pursue.

Permalink Reply by Dion Warr, CPL on July 18, 2013 at 18:34

Adubu:

Good luck with it. Hopefully you recon and working relationships with the parties pays off for you. Being cut out of a unit and cut off from development can be a painful experience. Take care.

Permalink Reply by Skip Peel - Mineral Consultant on July 18, 2013 at 8:48

Nice summary, Dion.  Let me rephrase that, "These Texas mineral law discussions always make me appreciate  the Louisiana Mineral Code...as it treats the interests of mineral lessors".  Working Interests do not enjoy such protection.  However I haven't heard any complain lately in development in my back yard.

Permalink Reply by Andrew on July 19, 2013 at 16:59

In defense of the Mineral Code, non-consent penalties are not governed by it. The changes you are referring to were to Title 30, Section 10 of the Louisiana Revised Statutes (a.k.a. the Conservation Act or the dreaded "thirty-ten").

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