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How not to get cut out in Texas?
Can someone explain Texas unitization in general? In Louisiana, if you're in the unit boundary, you either get leased or you will back in after payout for your proportionate part of revenue of the unit. In other states, you are subject to a payout penalty but you will still get something, assuming the well does good.
I don't understand Texas... they can draw these units anyway they care to, leaving you out, I do know that. So, why do they care if I lease or not? Why should they cave in and meet my provisional demands or demand for more money or more royalty? Assume I have 200 acres. That's a nice chunk, and I know they want reserves and if the geology is narrowly focused, my 200 acres might be crucial. But if it's not, why cater to me? If there is a lot of competition, I can understand why they would, but often, there is no competition.
I understand there is some kind of difference whether or not your tract is the drillsite or not but I don't know what it is.
If I feel a certain something is got-to-have-it, I don't want to lose out but I want what I want! I have been ripped off before. I know it's business but a fella needs to know what he's up against and Texas is really confusing. In fact, does anyone know of a mineral law book that covers many states general provisions?
But I wish someone could take a stab at addressing my concerns about Texas... what leverage do I have?
Replies to This Discussion
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Permalink Reply by Mary Jo Hudnall on -
The Basics of Pooling and Unitization in Oil and Gas Leases
Check out this past post by Buddy Cotton.
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Permalink Reply by Neverybilly on -
Thanks, I read all three articles. I am still confused, probably even more so. For instance, sans competition from other lessees, I can't figure out why a lessee would ever offer more than minimum terms. Of course, he has to assemble a lease block and if his offer is too low, nobody will lease. But once he has a leaseblock...
Buddy's article proved that the lessee can benefit from cutting you out. I realize that in his example, it was a much smaller tract and not 200 acres. It's just really confusing about how far a lessor can push for his requests.
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Permalink Reply by Cliff Williams on -
You are most certainly correct that in Texas they draw the unit in any shape they desire as long as it fits within the BROAD guidelines established by the RRC for spacing/units. There is no way to get a handle on how the unit is going to shake out at the oil and gas company.
In order to really play the game with the oil and gas company you have to know what they are looking for geologically and more specifically if the zone is under your property. You just can't know that from the outside. With 200 acres you should probably contract with an attorney or with Buddy Cotten to represent your interest to the oil and gas company.
1. The company will treat an oil and gas professional (landman or attorney) differently than they will a non-industry person.
2. The fee I typically charge (which is the same as many) to draft a lease that protects the landowner and then negotiate and increase in bonus and/or royalty amount is usually one-half the difference in what the mineral owner originally started out being offered and the accepted offer when the negotiations are completed. If I can't get a good increase in your bonus and royalty then I don't get paid.
The forced pooling provision in Texas was originally established to help small mineral owners force their way into an established, contiguous unit. (I attended a CLE put together by Bob West at Whitaker Chalk in Fort Worth on just that issue today) The Texas RRC rules establish what their best guess is for drainage and the oil company must remain an established number of feet from your non-leased property which should protect you against drainage if you are not leased and in the unit.
Don't know how much that might have helped. You may restate more specific questions and others will surely make attempts to answer.
Attorney
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Permalink Reply by Buddy Cotten on
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Dear Mr. Neverbilly,
Since 99.99% of the unites in Texas are voluntary pooled units, the first step is to lease to the operator. That improves the odds that you will be pooled.
however if you have 200 gross/net mineral acres, all you need is 40 acres to drill a well and the oil company would not be willing to give some other company even a corner shot on your reserves.
This can be a very intricate business with a lot of decisions made with inferior business intelligence on what the other side is up to.
Like spy vs spy, each situation is unique.
Best,
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