Donut Hole Hypothetical- #2

Most interested in whether land will actually remain undeveloped.  Seems unlikely in light of 25-50 million at issue, but was wondering if anyone had any better idea.

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Permalink Reply by FXEF on January 10, 2011 at 2:00pm
If the the lease is held by an O&G operator that is actively drilling in the area, most likely it will be developed.
Permalink Reply by Aaron Hovan on January 10, 2011 at 2:04pm
right.  in this case, it is held by an O&G operator that is not actively drilling in the area.  but, it is surrounded by land  held by an O&G operator who IS actively drilling.  Hence the donut hole!
Permalink Reply by FXEF on January 10, 2011 at 3:51pm
If the active O&G operator does not include the donut in a drilling unit pool, then it could very well go undeveloped. It would be in the best interest to all parties for the donut to be assigned to the active O&G operator.
Permalink Reply by Aaron Hovan on January 11, 2011 at 4:27am

Thanks FXEF.  What is the basis for saying it can go undeveloped?  Based on the estimated value of gas in the area is susquehanna county (per this list) of 25,000 - 50,000 per acre, I am talking about 25-50 million dollars. 

 

I have a hard time understanding why a the Donut Company, i.e. a company with infrastructure all ready to go and sitting right next door and all hooked onto the pipeline wouldn't want to just grab that 25-50 million dollars.

 

Why couldn't the Donut Company just adjust the drilling unit pools in 4 years?

Permalink Reply by FXEF on January 11, 2011 at 5:12am
I don't know PA unitizing and pooling rules, but amending the unit size is not a common practice in most states.
Permalink Reply by Mike Knapp on January 11, 2011 at 7:35am
it's not a super common practice here in PA, but it's legal to the best of my knowledge, depending on the circumstances.  
Permalink Reply by N Bohl on January 11, 2011 at 5:56pm

I don't know about a donut hole but I have already seen a few units that have changed. But they added to edges. In the County in PA I am most familiar with many of the units have odd little bits here and there of land that look either unleased or leased and held by another company. Also in PA there are I think at least a minimum size for units - what is it though? Maybe around 400 acres? I forget. That could change of course.

Permalink Reply by Aaron Hovan on January 12, 2011 at 6:48am

yes, i have seen leases where units have changed 3+ times.  I guess I am really asking why wouldn't they.  the Donut Hole Company is trying to tell me that this will go undeveloped and the Donut Hole Lease will get no royalties.  

 

 

Permalink Reply by FXEF on January 12, 2011 at 8:36am

Aaron,

If your leased land is inside the boundary of a pooled unit, you are entitled to your proportional share of the gas recovered. You do not have to be leased by the O&G company that holds the unit orders and doing the drilling. You will receive payments from whoever you leased to. As far as unit size and amending the size of an unit, the state O&G board has to approve the operators request.

Permalink Reply by Aaron Hovan on January 12, 2011 at 9:14am
no, we are surrounded by pooled units.
Permalink Reply by FXEF on January 12, 2011 at 9:54am

Aaron, If what you say is correct, then most likely the O&G company you leased with will have to drill and produce the gas.

 

After rereading the original post, I think you need to let the O&G company that holds the 3000 acres take your lease, otherwise you maybe left out. Too many donuts!

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