Chesapeake wants to increase production unit

I am leased with Chesapeake and they just called to tell me that they want to increase my drilling unit size.  Currently my contract says it can't be more than 640 acres.  I have not been put into a drilling unit as of yet but it seems like they are trying to do that now.  I told the guy from Chesapeake that increasing my drilling unit would mean that royalties would be split by more people.  He agreed but then added that increasing the unit would also allow for more gas capture.  Does anyone have any insight into this??  The guy from Chesapeake told me that I would actually make more money in royalties but then again, what would you expect him to say.

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Permalink Reply by cheliped on July 29, 2011 at 6:16am
thanks.  seems like it can be difficult for a company to gain 640 + becuase so many people need to agree.  one person in the center with 10 acres can spoil it.
0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on July 30, 2011 at 1:03am
Does anyone know if the oil companies tend to install wells where they utilize the geological research findings or wells where the contractholder (lessor) has not negotiated a fee to be paid for any drill site of a well?   Example if one landowner has a contract for about 10k per well drilled (breaking ground) and another landowner in the same unit has perhaps no fee per well drilled...would they tend to use the land where there is no outlay per well or does the geological findings take priority as to the location of the drill site?
Permalink Reply by Ann Ticopa on July 30, 2011 at 3:42am
Ignore ... computer glitch.
Permalink Reply by scott peterson on July 30, 2011 at 8:14am
10k is a literal drop in the bucket for an oil co. they are going to go where the data shows the most potential i would assume.
Permalink Reply by Mark Allen on July 30, 2011 at 9:18am

Forced pooling-pugh clause both vertically and horizontal, do not allow them to take more than 640

do not allow them to take surface to core. Lease formations that they plan to develope over the next 4 to 5 years only.  Remember this is your natural resource, communicate with your neighbors.

 

Communication or the lack there of................Get educated. 

Permalink Reply by DKinPA on July 30, 2011 at 9:24am

I agree with Scott.....the expense of setting up the pad and drilling is so high and the potential return of a good area supported by seismic studies versus decreased return from an area not supported by seismic studies makes that 10K or even 25K a literal drop in the bucket.

On the discussion of the size of the unit:  In my opinion it does not matter the size of the unit.  Ultimately they will take all the gas in the unit whether it is 640 or 1280 acres and you will still get your 12.5% or 18% or 20% of the gas under your land.  With bigger units they will drill more wells and the daily production will be greater so it may not even drop your annual royalty. 

I would also expect that it is better from an environmental and municipal standpoint.....fewer pads, fewer retaining ponds more consolidated traffic etc.  Just my thoughts!

Oh, and you definitely want a pugh clause in there to protect from the previous scenario of part of your land being excluded.

Permalink Reply by Jim Pollock on July 31, 2011 at 10:51am

Pam S,

 

What county are you from? I am just curius if they may want to increase my unit size also. I am from columbiana county and I originally leased with trinity but now it has been bought by chesapeak. I think that if I were asked to allow  bigger units, I would try to get a higher royalty out of it.

Permalink Reply by Pam S on July 31, 2011 at 3:56pm
Bradford county. My lawyer said that they are doing this everywhere because they use longer horizontal lines
Permalink Reply by Ann Ticopa on July 31, 2011 at 4:53pm
Depends on the number of wells they plan to drill in the 1200 acre units.  If it's 11or 12 wells then it's unlikely the horizontals would be appreciably longer.
Permalink Reply by Jim Litwinowicz on July 31, 2011 at 9:09pm
They are increasing the size of the units so that they can tie up more land under the "held by production" clause.
Permalink Reply by paleface on July 31, 2011 at 9:25pm
 There is not great demand for the enormus amount of gas there is in the marcellus shale play but as legislation starts to change for a cleaner fuel,which is what they are laying all those pipes and infasture for its gonna get real busy. All that gas is gonna get sold.
Permalink Reply by Jim Litwinowicz on July 31, 2011 at 9:43pm

Yes all that gas will get sold in time.  But the companies have much more land under lease than they can possibly drill and produce before all the leases expire. They need to get  a few holes punched and tie it up for the next fifteen to twenty years for all the infrastructure and the conversion of vehicles to nat gas to occur. Then it will be Katy bar the door.

 

They are also in the exploratory and research phase.  They are looking for the best spots and the bad spots. If an area is poor, they will let those leases expire...if it is good, they will drill just enough to hold the land by HBP

 

They are also researching best practices to get the maximum out of the ground. Every area has its own peccadilloes  that needs to be figured out. Then do a cost analysis and drill away where it pays most.

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