Unit Size and HBP

Ok, so Ive been reading a lot about 640 acres vs 1280 acres, and the pros and cons of both. But I have yet to see any discussion of a production company being able to hold 1280 acres with a single pad that is drilling on property leased with a 640 acre unit restriction. Its very simple ... a producer can locate a pad straddeling two 640 acre units... exactly on the border. Then they drill one well just a few feet inside the one unit's border.. then move the rig a short distance (like commonly done) until its in the other unit and drill again. There ya have it! One pad... two wells a few feet or whatever distance is necessary for them.. and 1280 acres held. Or even 2560 acres with a 1280 restriction.. or even much more if the pad is located on the exact corner of 4 units? what about odd shaped units with more than four connecting corners?? What do ya think? HBP 5 or 6 thousand acres with a single pad and 6 or 8 holes? Possibly some of them verticle? Or i could be totally wrong and everyone has made this illegal in their lease agreements.... I would think it would take quite the wordsmith to prohibit this in a lease.

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Permalink Reply by Rick on September 29, 2012 at 3:26am

I am not saying that it HAS been done, it may have or may not have, but saying that it CAN be done..  By the way, utica, just curious, do you have a farm or more than a few acres under or available for lease?   or are you on the other side of the equation?

Permalink Reply by Rick on September 29, 2012 at 2:22am

all leases allow this... thats my point. They already have a lot of options on what to do with your land and unitizations etc... i believe they can even change the unit layout at anytime they choose also.

Permalink Reply by Kathleen on September 29, 2012 at 3:31am
I sorta asked this question to DPS Penn yesterday during unrelated business. What happens if someone holds out, can they after the full unit is declared and well is producing still get included later. Remember the source please but his sounded reasonable to me. If that one mineral owner did not have a lateral within so many feet the driller could except them later and add more fracking stages to that lateral.
Yes that hold out would have lost out on the production the others in the unit already received.
I was also told if a giant unit was made but one landowner in the middle was holding firm on a 640 lease they would just pick out a unit from this giant unit with this mineral owner included and declare that a seperate 640 unit. Basically there could be a unit within a unit even going the same direction off the same pad. This would have to be a big unit.
Permalink Reply by Rick on September 29, 2012 at 3:57am

Again, I believe that the unitization laws freely permit o&g companies to divide, combine, conquer, and HBP, ALMOST as they see fit. But the miniscuel restrictions that are in the property owner's favor are a thorn in their ass... and they want to play word games and try sneaky tacticts to trick people into giving them even more leeway in this free4all...oh yea.. and when all else fails, they lobby the legislature to get laws passed to benefit them even further... are there any landowner lobbiests out there? and if so, how powerful are they against the likes of chesapeak, BP, Exxon, Marathon oil, etc... ?

Permalink Reply by Kathleen on September 29, 2012 at 4:03am
Pa is different so I only talk about Ohio, but the leases signed are what the drillers have to go by. Good leases stop the "as they see fit" issue.
Permalink Reply by Rick on September 29, 2012 at 4:16am

Kathleen, do they declare units before you sign the lease? I would think that they dont consult with you and discuss things with you before they set up their units, and i would almost bet they can change unit layout even after production begins or after production slips a little, or if they are drilling different strata..  can you give me an example what lease language prevents them from changing units configuration after wells are drilled? I would think that is valuable information that others would like to include in their leases during negotiations.

Permalink Reply by Kathleen on September 29, 2012 at 5:25am
Declaring a unit and drawing one up is two different things since so many things can happen between the drawing and declaring to the State. They can add anyone in a drawn unit in their possession adding properties not leased yet. The closer you are to the pad gives you better negotiating terms if you are in lease negations or unit size negations. If your on the end they will just back the lateral away (do less frack stages heading towards that unleased minerals) from you.
In Ohio as far as I know once a full unit is declared with the state and its producing you can't be removed if your leased and named in that unit. It pretty much is what they submitted since they have to show where the entry hole is, bottom hole is, distance to each landowner, who's included in royalties, how many acres per mineral owner, how many acres in full unit, etc.
Like I mentioned before someone could (unlikely) be added later but of course they missed out on royalities and its at the co. approval and I bet not done often. They would have to redraw the unit, get approval of the new drawing... I'm assuming it would be a big headache for the driller and we won't see it happen.
One thing to have is a a clause saying "continuous acreage unit", or you could be a part of a unit 2 towns over. Again I'm not sure they would do this but to HBP they sure would.
All drillers can say they plan on drilling 6 wells but if the 1st wells aren't doing well, prices drop, they do not have to drill those extra wells. Now if you had the "development clause" Jim stated above in your lease and you are named in this fully declared producing unit I guess that would be a breach of contract by the driller.
I can't imagine any driller consults with any lease holder on how a unit is drawn, drilled, anything. Now if you own 1000's of acres they may.
If you have looked at any of the well drawing (they do call them units but its not the full unit most likely yet) lets say in the columbiana co. Section you will see these individual wells say "min" which gives them some flexibility but every mineral owner listed is under lease since these unit drawing were sent to the State.
Another thing to add if possible is limiting how much acreage can be held by a vertical well so adding a smaller acreage amount for a vertical well is also a good idea. Ex. A vertical well can hold no more than 30-40 acres. This would stop the driller from holding tons of acreage with just a vertical well.
When it comes to strata I've only seen language releasing above or below certain layers, nothing about unit sizes concerning them drilling into different strata. Clinton wells though do have lower acreage requirements since they are vertical. Others may have seen other language though.
If I think of more I'll post again.
Permalink Reply by Rick on September 29, 2012 at 5:50am

Thank you Kathleen!

Permalink Reply by Rick on September 29, 2012 at 4:03am

Utica, I havent seen that discussion... please forward the link if you can? You said earlier:

"This has been discussed in many threads on GMS. One 640 Acre Production Unit going North-West and one 640 Acre Production Unit going South-East from a single pad. There are thousands of newly signed leases that allow this. Nothing new with that."

Permalink Reply by mark o on September 29, 2012 at 4:15am

chk is in the process of doing this now in south beaver...2 640 acre units from 1 pad..one southeast and 1 northwest...

Permalink Reply by John Harrison on September 30, 2012 at 4:42am

Chesapeake has a  number of cases in Bradford County, Pa. with four units declared for one well pad.  Two in my township are Felter and Merryall.  Obviously this is to tie up the maximum land possible which is nearly 2000 acres in each of these cases.  Later they will put additional wells between these two wells and reform  the units to make north and south units for each well which will fit the typical 3 legs to the northwest and 3 legs to the southeast from one pad. 

The lack of any laws in PA allows the gas companies to do anything they want with units.  It will be interesting to see what they come up with next.

Permalink Reply by Rick on October 1, 2012 at 1:40am

John, ohhh dont worry, there are a few other scenerios, that will probably be tried to tie up as much land as possible... its not about drilling for them, its not about energy for them, its about making money,. And if they can make money shuffling leases around between eachother in all kinds of side deals and pyramid schemes, they will do it. All the while the landowner is considered an inconvienience that must be dealt with with trickery and deciet. I wish it wasnt so, but it is.

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