Why are unit sizes so important?

The function of units is to let producers tie up the maximum amount of property possible as HBP, (Held By Production). Smaller units force companies to fully develop what they lease.

 

Example: A vertical well according to most experts will drain roughly 40 acres once fracked even though most producers will require 80 ac to be held by a vertical. Some companies like Shell are saying that they can hold 1280 ac, (almost two square miles) with any kind of well. It doesn't matter if they drill a horizontal, vertical or even a shallow well. That is nothing more than their way of holding as much property as they possible can with the least amount of investment.

On a 5yr lease with a 5 yr option, which is cheaper, drill a shallow well @ a cost of $200,000 and hold 1280 ac forever, or end up having to pay all those land owners a second round of bonus payments and then still having to drill a well?

All landmen will of course deny it.  Easy enough to prove, tell them to put it in writing.

Never, ever, accept what landmen tell you verbally. In a short time they are nowhere to be found and all companies will maximize the lease to their advantage.

Next the landmen will say, "why would we spend all this money leave all those profits in the ground and not develop it?"

Here are 2 reasons:

First, currently the international market price for HBP acreage is $30,000 per acre. So they can flip at a great profit. Or entice international investment $.

Second: HBP acreage is considered an asset and listed as such on the companies books for accounting purposes, in turn that value is then reflected in a companies stock price. making stock holders billions of dollars.

There are states that won't even allow units larger than 640 acres. Pa will catch up but right now PA leasing is the wild west and they grab what ever they can as cheap as they can.

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Replies to This Discussion

Permalink Reply by George Brown on October 1, 2011 at 6:43am

Interesting observations.

Thanks!

Permalink Reply by paul geiger on October 1, 2011 at 7:02am
Here in Ohio the permitted wells with maps that t I found on the net  for  drilling horizontal are about 1000 feet wide and let's say 7000 feet long and 1000 radius at one end  so we're talking under 200 acres .If you go to My forum the look up how to drill your own well , try it it's fun  And just see were it goes .
Permalink Reply by Sarah Violet on October 1, 2011 at 8:10am
Tomcats58 ,  Thank-you,  for posting this info for us.
Permalink Reply by Frank Walker on October 2, 2011 at 12:53am

I guess a lot depends on the gasco.  Not nay-saying what you wrote but none of that stuff is happening here where I live in PA.  Units are all a square mile plus or minus.  All units are being fully developed.  Gasco is in this to produce gas, not to profit by taking advantage of landowners.

 

I almost wish they would slow down.  With gas price at $3.67 as I write this and falling like a stone, I could do with less production now and more later.  Shut in a few wells, I say, and tap some of my gas in a few years when prices (I hope) will be up.

 

That's not happening.  Larger units?  Let me tell you, if that results in less income now but with more production pushed into the future . . well . . bring it on.  I'm all for that.  Word is gas is headed back to $2.00.  I don't wanna sell my one and only supply of gas at $2.00.  When my Marcellus gas is gone, it could be another couple of million years before my supply reappears.  I might be dead by then. 

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