Question about the drilling process

Just wondering if it is normal practice for the wells to have a rig come and drill only one leg then move on to another location then come back to drill additional legs.  If so, why don't they just drill all 6 legs at once?

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Jim ShoosPermalink Reply by Jim Shoos on June 18, 2012 at 5:06am

Yes...that was confusing!  Who gets paid royalties and whose land gets included in a producing unit is SOLELY a function of what your lease, and all the other landowners leases provide for.  Ideally a company will pay and include as many leases as possible in order to HBP them. 

Permalink Reply by pamacraw on June 18, 2012 at 5:11am

:) Thanks!!

Permalink Reply by craig on June 18, 2012 at 5:35am

All properties in the declared unit will share the royalties according to each individual lease regardless if there is one leg or multiple legs. 

Permalink Reply by Jamotom on June 28, 2012 at 2:43am

Gents: thanks for the education. I need further educated on how this process works. In Columbiana county for example, we are seeing the rigs put in 1 leg and move on to another well. I understand the rational for HBP and mitigating future re-up bonus payments, however, most of these units are relatively small...less than the 640/1280 acre units we have heard about and the unit sizes stipulated in most of our leases. Is your thinking that the unit sizes of these wells will be increased after more info is gleaned from the first well and the closer we get to the first terms expiring? 

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on June 28, 2012 at 3:00am

Not likely, unit sizes are generally dictated by what the various leases allow.  If those leases allowed for larger unit sizes it would have already occurred.

Permalink Reply by Jamotom on June 28, 2012 at 3:36am

Jacque, that was my thinking initially; however, most of these well unit sizes are less than 200 -300 acres....unless I am reading the ODNR info incorrectly. Hence, are we to assume that these pads...assuming the  1'st well proves productive, will get multiple well bores and that the unit size will remain at the 200/300 acre or less size?

If so, then doesn't that increase the Lessee's risk of exposure to (re-up) bonus payments at the end of the 1'st term?

I am just trying to get my head around the small unit sizes we are seeing knowing that HBP is a major tool to help the Lessee keep their basis down.

Additionally, we are all aware of some Lessors being approached to modify their lease to allow larger unit size when they are a potential pool target...so??

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on June 28, 2012 at 3:48am

Pads are typically constructed to accomodate multiple horizontal wells in order to minimize surface disturbance and to maximize the cost effectiveness of building pads.  In theory, the laterals could extend out from the pad like the spokes of a bicycle (in reality the laterals will be aligned so as to follow the shale orientation which improves the frac penetration... kind of like cutting with the grain on a steak).  Each lateral could in theory be its own unit, but producers typically avoid doing that... but they could do so if the lease language restricted them to smaller unit sizes.  Assuming you have a pugh clause in your lease then all of your property not included within the confines of a unit containing a producing well (or a well capable of producing) at the end of the primary term would expire and need a new lease entered into before any additional development can proceed. 

Permalink Reply by Jamotom on June 28, 2012 at 4:19am

Utica:

I have not seen the court house docs...only referenced the ODNR drawings that you refer to.......I do have knowledge of 3 wells (I know the participants) and all are less than ~330 acres, these wells are in eastern Col Cty. Do you have a feel for the average Utica unit size that has gone in?? Perhaps that is the question I should of asked first.

 Jacque:

Appreciate the info; I understand conceptually bore/shale orientation and the frac process....but neither is relevent to my premise of relatively small unit size and the impending re-up of bonus monies for much of the leased acreage if it is not HBP.

3rdk2fq1zz77dPermalink Reply by 3rdk2fq1zz77d on June 28, 2012 at 4:49am

Again, you have to assume that the producer will seek to maximize the size of the unit to the extent that their leases allow... that is the ultimate limiting factor.  They could always seek amendments to the leases but that doesn't typically go over well with lessors... they recognize the end game of HBP'ing the largest amount of acreage with the fewest amount of wells drilled. 

Permalink Reply by Jamotom on June 28, 2012 at 6:45am

Jock: Perhaps you are correct that the wells I am thinking of had older leases limiting the pool size; 2 of the 3 wellsites I know had older Range leases on portions of the parcels that got unitized. Thanks for the input.

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