Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2018 at 4:16

What if crude is $45 a barrel in 18 months?  Craig, be careful what you wish for, the future is unknowable.  Considering the size of AC drilling units and the ability to drill Cross Unit Laterals, the impact of one well such as this one is not great regarding the total reserves in a unit.  Over the course of the life span of all the unit wells, the lost revenue would be negligible.

Permalink Reply by John Matherne on May 17, 2018 at 4:21

Skip you make a good point that I wish I would have addressed in my lease. Minimum sale price to produce at.

Craig they are waiting to go to Pointe Coupee last. The best is saved for last.

Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2018 at 4:26

John, I don't think any operating company would accept a lease with that stipulation.  Louisiana compulsory unitization regulations would allow them to leave all but the largest of land positions non-consent.  No, I think Point Coupee is actually next.  :-) 

Permalink Reply by John Matherne on May 17, 2018 at 4:38

Maybe our 1000 acre block would be easier to get that stipulation. The way I look at it when its gone its gone and the math on $70/$45 is a 55% increase. It's like more production with less.

Unlike Craig I hope it goes for 3 more years and get a lease renewal then hit pay day and choose an earlier retirement. That's my dream anyway.

Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2018 at 4:42

It's okay to dream but I suggest that you get some professional help.  IMO 1000 acres wouldn't get you a price guarantee.  I've dealt, indirectly, with leases on tens of thousands of acres and even in those cases the industry doesn't agree to demands like a price guarantee.

Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2018 at 5:18

Good luck, Hydro.  All the companies with meaningful land positions will need to get started testing their acreage this year.  The clock is ticking on their leaseshold.

Permalink Reply by Rock Man on May 17, 2018 at 10:02

100,000+ acre ranches in the Permian Basin would not get a "price guarantee". But you can always try to get the best lease as to cost free, pugh clause, access and egress, damages, hunting season restrictions, etc.

Permalink Reply by Bob Zimmerman on May 17, 2018 at 13:52

Rather than force minimum pricing which will never fly, one could  bargain for a back in after payout of additional royalty. Not saying you will get it, but on the other hand, if they don't get your mineral rights, then what?

Permalink Reply by Skip Peel - Mineral Consultant on May 17, 2018 at 14:11

There were a few leases with after-payout bumps in the royalty fraction but they were extremely rare and special cases.  The days of no holds barred land wars are largely over.  Now operating companies simply divide up Areas of Interest and collude on lease terms. 

The answer to "then what" depends on the details of the circumstance.  If the mineral interest is of insufficient size to render unit operations non-economic, you get force pooled, the unit operator gets the benefit of the non-consent gas until well payout (on each unit well drilled) and then the Unleased Mineral Interest gets the pleasure of being pencil whipped on Lease Operating Expenses while receiving payment based on their proportional share of unit production.  If the mineral interest is of sufficient size, there is other rock that a company can go drill and the unit goes undeveloped.

Permalink Reply by John Matherne on May 17, 2018 at 15:07

Why not Jay? If nothing happens this time around then nothing happens. 

Permalink Reply by Bob Zimmerman on May 17, 2018 at 15:57

<operating companies simply divide up Areas of Interest and collude on lease terms>>>

True, but strictly in violation of federal statutes, see Sherman and Clayton Anti-Trust Acts.  

Donald Trump would say, "The deal is rigged."

And that's no lie.

Permalink Reply by Rock Man on May 17, 2018 at 16:04

Holding out for atypical lease terms is a big mistake in my opinion. Opportunities to lease and get drilled don't happen all the time - get hooked up with a good operator in a fair and well written lease and hope to get some good wells drilled and then get mail box money for the next 20+ years.

I speak as both a person who has leased minerals as well as a person whose companies have leased minerals - so I do understand and see both sides of the story on this issue

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