Replies to This Discussion

Permalink Reply by Charmine on August 12, 2009 at 11:35

Hi all, he's back! Same landman called today. I knew the offer was going to be bad, but he is working the tract again. Here goes- $300 for 5 years, at 1/5. He says there is little room for negotiating. He sounds like he is saying that they are ready to force pool. I personally do not want to force pool...I want to play and get drilled. Talk to me guys!

Permalink Reply by Carter on September 14, 2009 at 20:12

First off, you should have took the deal last summer. But you know that. Not trying to be a jerk, but you had ample information at your fingertips to make an informed decision, including a lot posted by myself back then (perhaps not to you directly) urging folks to have some common sense. Any market revolves around fear and greed, and I can remember there was a lot of greed and not too much fear in your posts from back then. Well that is all the bad news!

The good news is now you are more seasoned and ready to deal. The landman you are dealing is a moron. You never negotiate with landowners from an adversarial position. He has no leverage. His offer is dirt. You own the minerals, and while a company could go around you depending on the size of your tract, this is not OkieHoma, they can't just force pool you. (technically you can force pool in TX, but its rare and certain conditions have to be met, and its irreverent as far as your position should be right now) If he's ready to deal from the perspective of getting you tied up so they can drill, he's needs to make a reasonable offer. Tell him to not call you again until he's got something reasonable. You might start out with $1K to $1500/ac/25% royalty for a 1 year lease if he's ready to get you tied up so they can drill. Just reviewed a deal for a guy south of Shelbyville where XTO paid $1500/2YR/1/4 royalty to get a guy tied up. But XTO was ready to get wells going down there. Now if they are just fishing for exploratory leases and not getting ready to drill tell him not to call you anymore, with a lowball offer. Obviously, if you would turn down $7500, you don't need the money :-) So now is the time to play more hardball. GLTU

Permalink Reply by Charmine on October 21, 2009 at 5:19

Hi Carter, yes you are right...I should have taken the deal last summer, but I did not. Greed might be a little harsh though, don't you think? If I had a lot of money in the bank, and was not happy with an offer of $20,000 and 1/4th....then I'd say you were right. You need to remember that a lot of us have no clue about oil, and that is why we are here to learn. Some of us don't even live in the state and didn't know our minerals even existed, and we are here to learn. Oil man on phone says this is what we think your land is worth, and landowners tell me what they think our land is worth. I say it is probably worth somewhere in between TO ME, for my circumstances. Before you put the hammer down on me...know this. I inherited those minerals when an uncle passed when I was 16 years old, and I am 39 now. I also inherited $60,000 at 16. My dad did the best he could to save it for me, till I was old enough. By the time I was 20, I had talked my dad out of all those CDs, and it is long gone. I was a wild child back then, and have since done a lot of growing up and paying my debt owed instead of weaseling out of it. So when a landman calls me, and tells me I have mineral rights that he wants to lease...what goes through my head? My first thought is OK, cool...and I somehow got a second chance to have some extra money and use it wisely. So I come to this website to try and make an educated, informed decision. I live in an old trailer, and am trying to pay off $150,000 worth of old debt that isn't even mine. Yes, I want the best deal with my mineral possible....and I don't even get to do something fun with it....because the right thing is to honor my commitment and pay off this debt. I haven't been on this site in a month, because I was diagnosed with breast cancer. I don't even want to think about oil, because if I sign a lease...the right thing to do is put it towards the hopital bills. So you tell me....am I being greedy, or just trying to do the right thing and make a good business decision...now that you know the facts about me. My apologies to all for off topic, but I do have a hard time with people judging people without knowing the facts.

Permalink Reply by Eric Camp on September 18, 2009 at 12:29

Highly unlikely. The Railroad Commission would not likely grant the Rule 37 application. Even if it did, the mineral owner could force pool her way into the unit under the Texas Mineral Interest Pooling Act. The Commission tends to protect mineral owners and may pool her into the unit with a 25% royalty and 75% carried working interest (but no bonus). See the attached Finley Resources case (RRC Oil & Gas Docket 09-0252373) and the XTO / Rosen Heights case.

Attachments:

• Finley Resources Case - Amended Proposal for Decision.pdf, 5.6 MB
• Mineral Interest Pooling Act - RRC Final Order on Finley Resources, Inc.'s Application.pdf, 2.5 MB
• XTO - Rosen Heights (Order).pdf, 276 KB

Permalink Reply by jffree1 on October 22, 2009 at 4:09

A further analysis of the decision on the Finley Resources case:

Expanded Use of Mineral Interest Pooling Act?
May 22, 2009
Posted In: Pooling

By John McFarland on May 22, 2009 4:10 PM | Permalink

The Texas Railroad Commission handed down an interesting order last August that may have broad application for operators' use of Texas' Mineral Interest Pooling Act to force unleased mineral owners into pooled units. In Docket No. 09-0252375, Finley Resources applied under the MIPA to form a pooled unit in the Barnett Shale consisting of 96.32 acres, for the drilling of a horizontal well. The proposed unit is in an urbanized area with numerous lots, and Finley was evidently unable to get all lot owners to sign leases. A plat of the proposed unit is shown below. As can be seen from the plat, there are a lot of unleased lots (the white spaces) in the proposed unit.

(See http://www.oilandgaslawyerblog.com/2009/05/expanded-use-of-mineral-... to view the plat)

Under the MIPA, the operator seeking to form the unit must make a "good faith offer" to unleased owners before filing an MIPA application to force them into the unit. Finley offered the unleased lot owners the right to receive a 1/5th royalty and a 4/5ths working interest, which means that 45ths of those owners' share of production from the well would bear its share of the drilling and operating costs of the well. After studying the matter for a year, the Railroad Commission approved Finley's application. One unusual aspect of the order is that the unleased owners suffer no "risk penalty." In most MIPA applications, a party who has refused to join the unit voluntarily must bear its share of the drilling costs plus a "risk penalty," not to exceed 100% of the drilling and completion costs, before participating in revenues from the well. The Commission's order in Finley allows the unleased owners to participate in revenues as a working interest owner once the operator has recovered 100% of drilling and completion costs, with no "risk penalty."

Operation of the Finley order can be best understood by a hypothetical example:

Suppose that you are the owner of a one-acre lot in the proposed unit and have refused to sign a lease. Suppose that the Finley Well is drilled and completed at a cost of $3 million, and produces $6 million of gas in its first year of operation. As an unleased owner, you would be entitled first to a 1/5th royalty on your one-acre tract: 1/5 X 1/96.32 acres = .0020764. Your share of the $6 million would be $12,458. In addition, you would be entitled to 4/5 X 1/96.32 = .008056 of production as a working interest owner, less the drilling, completion and operating cost of the well. Assuming that those costs are $3.1 million, your working interest share of production would be $24,086. That would be equivalent to a 58% royalty interest on your one-acre tract!

Mineral owners expressed concern about the possible effect of this use of the MIPA to force them into pooled units against their will. It appears that, if the Commission follows the same formula on future MIPA cases involving unleased interests, the landowners will be well-protected.

Permalink Reply by Todd M. Baker on September 15, 2009 at 17:43

PBOL:

May I ask what size tract (acre) your mineral interest is under? It does make a difference in TX as to whether or not the O/Gs "need" your interest.

It is important to know that in TX, you can easily become the hole in the doughnut and that is not a good place to be.

Todd M. Baker

Permalink Reply by DJG on September 16, 2009 at 7:00

How large of a hole in that doughnut would be sufficient for it to be a scenario where the O/G's "need" that interest?

Asking, as we currently have a majority interest in over 100 acres of unleased minerals in what is now looking like a pretty interesting section of NW Shelby Co.

Seems to me that the O/G's would be much more interested in working out a lease agreement that is fair rather than leave behind their rather substantial profit potential from their 75% share of those minerals should that acreage go unutilized?

Permalink Reply by Todd M. Baker on September 16, 2009 at 8:37

DG: That is probably the $64000 question. I imagine each operator has a different view and how the tract sits in relation to the leased tracts adjacent thereto must be taken into account.

If your 100 acres are undivided, I wouldn't think they would walk away from you. But they may be able to make a unit without your tract. Obviously, everybody, including O/G's, have a very different idea of what is fair.

Just remember Rule 37. O/G's will use it to their advantage.

TMB

Permalink Reply by Adam on September 16, 2009 at 10:33

I just scimmed Rule 37 and dont see how it applies to an unleased mineral interest. I see that it applies to spacing and distance to nearest wells, but how does it apply to unleased mineral interests other than the company redrawing the unit.

It has been my experience in Texas that unleased mineral owners will remain just that, unleased. As long as the drillbit does not cross the property, you dont have to be leased.

Permalink Reply by king john on September 16, 2009 at 14:00

according to this no...the frac does not extend that far from the well bore.
https://breeze.psu.edu/p42527236/
this is a link from a discussion on the main page by Mmmarkkk called well spacing considerations.
kj

Permalink Reply by DJG on September 16, 2009 at 14:41

Yes, I saw that link to Prof. Engleder's lecture previously in that other thread and it does seem to address that the range of maximum extraction from a horizontal well is around 330' in either direction perpendicular to the lateral drilling. Outside of that range, he explains, the groundwater fills the fractures and prevents any significant drainage of the NG that is outside of the 660' production zone width of the lateral well.

If I am understanding that properly, then it does seem to suggest that it would be difficult to extract the gas to any effective measure outside of that zone so the the 438 foot lease line would help protect those resources.

If that is indeed true, then it does make me a bit less concerned about the prospect of them sucking out the minerals from an unleased tract of over 100 acres.

Logically it would seem that the O/G company would have more of a financial interest in mazimizing that acreage so that they could fracture it properly and suck all of the NG out rather than trying to leave that acreage out of a unit and work around it?

Thank again, who says logic is the opperative thought here?

Just trying to get my head around this situation so as to how to respond to the next offer from the landmen.

Permalink Reply by j garrett on October 22, 2009 at 12:31

Like ogmladvisor said below, the rule is 467' ft from the lease line. This is derived from the bore holes needing to be 934' apart minimum. Just a few years ago the minimum bore hole distance was 1200' in Texas. It was reduced based on the science, which was really based on vertical wells. The RRC did their best to determine "drainage" parameters in order to maximize production. I attended a meeting with one of the 4 railroad commissioners who made it clear that their job is to maximize the production of hydrocarbons in the State of Texas. As you said above, the 330' distance is dealing with drainage area for the laterals on a horizontal well.

BTW, I've not heard of any actual forced pooling in Texas until this thread. I feel certain "J" was wrong when he said you could be forced pooled and get zero royalties.

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