Well we finished up with the maneuvers of BP in Trumbull and after we on GMS studied our sources and leaked information. Our information turned out to be correct as the local business magazines produced verification of what we on GMS already digested; even though the BP strategy is still uncertain.
Now we have information coming in from Columbiana. We know that since Easter, an industry brokerage has opened up Columbiana to leasing as a clean up phase. Most of the gathering pipelines have hooked up wells and Columbiana's cryogenics plant is humming along. The trunkline connecting two cryogenics plants are on schedule so Columbiana is now ready for production supplying the new infrastructure. As can be seen by Hilcorp in the north aggressively drilling since there cryo is going online and the pipelines are snaking forward, Columbiana has been at a standstill.......or has it?
Today, my sources tell me after being in Texas for a week, that Independent drillers are coming into Columbiana to begin widespread drilling. That's right folks, CHK, seemed to run out of gas in Columbiana and we heard CHK was in discussions. I guess the outcome is that we are going to see units thrown together and those new pipelines hooking more wells up. This is Great news!
Abandoning your plans and selling your leases at a loss is an old industry trick. The only better one is intentionally spilling millions of gallons of crude in a large body of water so you can be sued for $20,000,000,000 in damages. Because something something something publicity. BP is as dastardly as they come.
Spoke to a CHK employee today. Bottom line is that he reaffirms the fact that:
With today's technology, the drilling up North is not as economical as the south. Simple fact of highest possible well profit comes from the south and it is indeed the low hanging fruit. Hold tight, watch the Eagle Ford as it drills the shallower areas and see who then attempts to try the technology in Ohio.
It seems drillers are amending leases to larger unit sizes in order that they may drill a well somewhere within that acreage and then declare the entire 1280 acres to be "held by production."
In my opinion, it initially serves to limit the landowner's ability to force the driller to renegotiate a lease they cannot get drilled within the original lease period and dilutes royalty payments, with prorated royalties divided among 1280 acres versus 640.
In my opinion, the benefit of a 1280 acre unit is that if the ODNR drilling unit you land is actually in is a dud you will still be paid from the other 6-8 wells in a 1280 acre unit. The risk is that if you have the only great well under your property you will share the wealth with the other 1280 acres owners but won't get much from their crappy wells. How likely is that? Not sure.
The benefit/risk of a 640 acre unit, using an example near our house, is that one of the 640 acre units has a lot more oil and pays better and the other has gas and pays less. The risk here is you are in the gas half and don't get to share. The benefit is you are in the oil half and don't have to share.
The risk of any unit larger than the basic drilling unit is that the well under you will be drilled (this is our situation at the moment only one well under us drilled in a 640 acre unit where potentially 2-3 more wells can be drilled) is that they will never be drilled if the first well is mediocre or worse. Then we share our royalties but never get any money from the other landowners under the never drilled wells. If we were in a 1280 and they only drilled under us this would be compounded even more ... sharing with all 1280 acres but never getting back anything from there well if it is never drilled in our lifetime or never at all.
Another benefit of the smaller unit is that they have to drill a minimum of two wells in two 640 acre units .... one in each direction to hold the entire 1280 by production. In a 1280 unit one well would hold it all for some time without them coming back to drill #2-8. If you are young no big deal you get smaller payments over longer time ... less tax potentially if you can stay in lower tax bracket. If you are older and have heirs they will get it. If you need the money now you want the wells drilled and to be paid.
I am sure there are other pros/cons that others have encountered but these are the ones we have heard about in our area.
what part of Col Co are you in if you don't mind telling
Mr Kurtz what township and section are you in?
My family owns minerals in other states and will routinely grant such a request. However, I would insist on a Pugh clause that says only your minerals included in the 1280 are held by the wells. If some leased lands are outside, they would have to form another unit to include those and drill a well during the primary term to hold the lease as to those minerals. Larger units=longer laterals, more frac stages, more oil and gas produced, more wells per unit and, of course, more other owners to share in production. But you are essentially gaining a smaller interest in a larger area--usually a good idea when you don't know what the production is going to be.