Replies to This Discussion

Permalink Reply by Greedy Landowner on July 30, 2009 at 13:34

I guess the question would be is the 500 acres within one section? If so it sounds good theoretically but if it were me I would lease it with big time stipulations on when and what kind of well is drilled. I couldn't justify the risk associated with going into the o&g business. Too many wolves and I would be a sheep with his toes in the sand in the Bahamas!!!!

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Permalink Reply by BirdDawg, plain ole' idiot on July 30, 2009 at 13:44

If it is all in one unit, no company is going to drill it, even if they pay their way. No money for the company in it. I think that landowner is gving themself a "lethalinjection". And they (their mineral interest) will die on the vine. Just like a watermelon in dry weather.
But they will still have it, and it may rain on them one day.

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Permalink Reply by Jon Williamson on July 30, 2009 at 16:10

Do you really want to get into the exporation business? Lots of things can go wrong. I would probably lease with favorable terms and try to participate on wells 4-8. Give the operator a chance to make a buck or else they will want to move to your neighbors section.

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Permalink Reply by Grillin' - MmmMmm on July 31, 2009 at 2:28

There are lots of organizations that buy reserves. They are not very hungry right now but might be by the time you execute this strategy. But as others are saying, if you hold 500 acres of one unit, getting someone to come in and drill on that unit with 500 of the 640 acres unleased is going to be tough. Don't think anyone will go forward with an unleased mineral owner of that size. Now, they might ask you to participate in the well, but do you have the resources (and insurance!) to be a WI owner?? If all 500 are in one unit, you would own 78% of the well. Even at a low cost of $6MM, you would have to front them $4.68 MM to get them to drill/complete. Do you have that kind of cash laying around?? And if something goes wrong, you could owe a lot lot more. Like what if a cow wanders up and drinks the frac fluid? Or the well blows out and needs to be capped? Costs could start going up really fast! And what happens is someone gets hurt and the WI owners get sued? See, this business is not for the undercapitalized!

another option: lease out a good portion of the acreage but retain a small piece and go UMI on that portion. You could then sell that portion later. Maybe lease out 400 acres. Being a UMI in Louisiana is better than other states but it still has some warts on it. But it will give you a bit more option value in the future.

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Permalink Reply by Dion Warr, CPL on July 31, 2009 at 4:15

Lethal:

There is really no advantage in this situation as far as enticing E&P that would not include leasing. As Mmmarkkk suggests, you could hold out a small percentage of the total acreage for UMI purposes, but 500/640 acres would also figure to hold the largest portion of prospective wellsites, as well. Drilling from an off-unit surface location represents an upcharge that is generally utilized when a feasible wellsite in-unit surface location does not exist, so minerals placed in commerce without the benefit of surface rights and access would also not be necessarily palatable to E&P.

Also, E&P companies are not going to be enticed by unconventional deals with mineral owners, particularly those E&P with a large backlog of feasible wellsites in which the lessee / operator would hold a large revenue position and there is a primary drive to HBP acreage currently under lease. One would have to figure that this is a primary goal of HS operators thru 2011, even extending into 2012 and 2013 in high-priority areas which were leased prior to the peak bonus prices paid in 2008.

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Permalink Reply by lanadan Ds3 on August 2, 2009 at 0:00

Mmmarkkk,

" . . . being a UMI in Louisiana is better than other states but still has some WARTS on it . . . "

Interesting choise of words. Would you please expound, elucidate, or otherwise explain just what these "WARTS" are ? I'm curious and would deeply appreciate your input.

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Permalink Reply by Grillin' - MmmMmm on August 3, 2009 at 2:04

there have been several folks on this board mention problems with the operating company...delays in payment, having to closely audit the charges billed to the UMI, those kind of things. Basically, its you against a very large company who generally has lots more money, lawyers and time. You have the law on your side, but that could mean having to fight it out to get what's right.

Personally, I've never experienced any problems with operating companies that a good discussion couldn't remedy, but heck, I work for operating companies so I'm probably (!) biased! I'll let others give you the problems, but just wanted to mention that being a UMI isn't always nirvana!

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Permalink Reply by lanadan Ds3 on August 2, 2009 at 0:00

Mmmarkkk,

" . . . being a UMI in Louisiana is better than other states but still has some WARTS on it . . . "

Interesting choise of words. Would you please expound, elucidate, or otherwise explain just what these "WARTS" are ? I'm curious and would deeply appreciate your input.

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Permalink Reply by lanadan Ds3 on August 2, 2009 at 0:05

Sorry for the duplication. My computer seems to be stuck on stupid. Or, may it's the operator !

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Permalink Reply by Skip Peel - Mineral Consultant on August 2, 2009 at 2:52

lanadan. Duplications happen occasionally. When they do click on that little X in the upper right corner of your comment box and delete the duplicate.

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Permalink Reply by lanadan Ds3 on August 3, 2009 at 0:05

Thanks Skip,

However, I fear it's the operator not the computer in error. I understand that hand-eye coordination is the first thing to go as a person gets older. Well, maybe not the FIRST thing to go. (yuk-yuk)

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