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Permalink Reply by Skip Peel - Mineral Consultant on September 4, 2014 at 8:00

tc, although there are probably something close to 100 docket items related to the TMS in this September hearing something around a third are either continued from August or amendments to previously approved unit applications. Still 60 some odd are quite a few.

You ask one of those questions that depends on what state we are discussing.  Units are basically pooling agreements.  An applicant proposes a set boundary for a drilling & production unit with a target formation depth definition and other standard criteria such as set back from unit lines and well spacing.  States set the criteria for making an application.  I believe that MS requires a minimum of 33% of the mineral acres in the unit be under lease to the applicant.  In LA there is no minimum and indeed no requirement that the applicant have any leases in the proposed boundary.  The units normally discussed here are compulsory in nature often characterized by the terms "force pooling" or "compulsory or forced integration".  The state provides the unit operator with the right to force all mineral interests within the boundary to participate either passively as a mineral owner (leased or not lease) or active as with companies or individuals that hold leases covering minerals in the unit who are expected to be Working Interest in any wells.  A Working Interest must pay their proportional share of well costs to maintain their right to benefit from production.  If they do not there are penalties.  Anything beyond this basic explanation gets very tied to the state where the unit is located. 

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Permalink Reply by Skip Peel - Mineral Consultant on September 4, 2014 at 8:28

I just read that for Sept. over 100 TMS units were applied for in MS.  So I have some questions?

That is incorrect but a mistake easily made by a layman.  The September MS Oil & Gas Board docket contain a large number of unit applications that were continued from the August docket.  Still there is a good number of new unit applications probably something close to 60.

If approved how long is a unit application valid?

In LA indefinitely until developed or dissolved by subsequent unit order.  MS?

Do they expire if no drilling?

Not in LA.

Since the operator only needs to lease 30% of the acreage to form a unit, can another operator who later leases more acreage in the unit challenge the unit approval?The main reason that there are so many MS unit applications carried over from August was conflicts between operators applying for units that covered parts of the same acreage.

Not later.  As mentioned above the play has reached the point where operators are competing to form units in areas where two or more companies hold leases.  The regulatory authority in LA and MS will settle the issue before awarding a unit designation.  In MS an operator may come back to the Board at a later date to amend the size of the unit or request other changes within the framework of the original order.

Does a approved unit application have any bearing on HBP?

A unit can not HBP leases however any unit well producing in the unit holds all the leases regardless of the surface location of the well.

Am I missing any other questions?  If so I'll let someone else answer them.  :-)

off topic.  Does an operator have to accept a "flipper" leases?  Once an operator has created a unit, what incentive do the operators have to accept the "flippers" lease terms.  They could force the "flipper" to be a WI partner, but how many of these " flippers" have the millions to pay for drilling, or force them to be UMO and pay the 400% penalty before royalties.  Since neither of these options are very good, I would think that the operator could force the "flipper" to accept its terms.  Am I missing some laws/regulations that prevent this from happening?

Unit operators get to force pool all the mineral interests within the unit boundary.  Companies that hold leases become non-operating Working Interests in the well(s) or get assessed risk penalties, usually pretty steep.  Or they can assign their leases to the operator and become royalty interests in the unit. 

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Permalink Reply by tc on September 4, 2014 at 8:53

Thanks Skip for all the info.

I wasn't on the forum during the Haynesville rush, so this back office land/unit rush is new to me, as operators never really talk about this part of their business.  However, I can see how these issues are resolved can have long term impacts on the operators.

The 100 number was third hand info, since I didn't look at the MS docket, but I remember looking at one early this year and there were only a few items on the docket.

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Permalink Reply by Skip Peel - Mineral Consultant on September 4, 2014 at 9:26

You're welcome, tc.  My comment concerning laymen was not directed at you.  There is and will continue to be a good bit of incorrect information regarding the TMS Play on the Internet.   

The rush to lease is always followed by the rush to form units and stake out an operating position.  Unitization is one of those areas that has great importance to mineral owners yet is very difficult to fully cover here. I always encourage mineral owners to get the help of an experienced O&G attorney.

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Permalink Reply by tc on September 4, 2014 at 10:10

Kirk on his Tuscaloosa Trend website has 2 posting dated 9/3 & updated 9/4 showing the units in the TMS and the update has many more units shown.  You can tell that EnCana is not in the unit application rush as most of their land shows no units. 

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Permalink Reply by Skip Peel - Mineral Consultant on September 4, 2014 at 10:47

Encana has formed a lot of units.  They have been at it much longer than Goodrich and Halcon.  I haven't finished updating my spreadsheet yet but there are eight new unit applications for ECA so far.  They had eight last month.

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