We own 150 surface and mineral acres in above property in Reeves County. Have now received 2 letters and documents to sign for production sharing in horizontal drilling something named Iguana Unit 6B #2H which will include Sections 6 & 7. One relative has just been informed that drilling will commence on December 22nd and any of us who have not signed will be left out of any royalties. They need 2/3 of us to sign.
Can Delaware really do this? I have tried to see if permit(s) have been issued but cannot tell. We were told that 4 wells would be drilled. Two family members leases are due to expire in February and wonder if this is a ploy to get them to sign so Delaware will not have to pay another bonus. I have also read that these Profit Sharing Agreements might be addressed in upcoming legislative session.
Is this area of Reeves County active?
Thank you for any advice or input.
Do you mean Production Sharing Agreement? That is for a well that crosses lease lines but the operator is not creating a pooled unit. Often this is because some or all tracts are already in a unit or have producing wells. The PSA is supposed to set out the method by which the production is allocated among the tracts. One method is by the percentage of the productive horizontal wellbore within each tract. Take the length between first take point and last take point(1st frac point and last frac point). Suppose it is 3,000 feet and 1,000 feet are on your minerals, then your minerals will be allocated 1/3 of production. If frac point are on your acreage, you cannot be left out. But operator could threaten to allocate by the theoretical productivity of the frac points and then claim your minerals are less productive than your neighbor's minerals. Unfortunately a number of operators are using PSA to get around leases which require lessors agreement to pool. This is uncharted area from legal standpoint as there is no case law. Some commentators say no harm because royalties are paid, but this may not be true if you only have tiny part of wellbore on your large tract and it holds all your acreage or the production allocation formula is bad. You should consult an attorney who understands PSA - not all oil and gas attorneys do. There is no standard form and not every owner has to sign identical document. Operator mainly wants consistent allocation of production for payment of royalties. Consider limiting your agreement to a single well and not to any and all future wells. Also exclude existing and future vertical wells located on your acreage. New leases should prohibit PSA as well as probihit pooling without your consent.
LB, good advice TennisDaze has given you, as always.
On your question about what's going on in the area, it looks like no permits have been filed yet in your section or for the Iguana Unit 6B #2H that you mentioned, but in Section 6 (A-1368) that joins your section on the south Patriot Resources just got a permit approved for a well called the Iguana Unit 6A that could be the first of those 4 potential wells you were hearing about.
Delaware Resources has a bunch of leases but as far as I can tell hasn't drilled any wells in Reeves County themselves. My guess is Patriot Resources would be the operator on the well that may involve your lease. Apache has also drilled several horizontals in your area.
If you aren't familiar with RRC's map site I bet Clint Lyles can shoot you a picture of what's going on there.
Attaching a plat for the Patriot Resources Iguana 6A #1H that RRC approved last week. Like I mentioned earlier, a permit hasn't been filed yet for the Iguana 6B #2H that you were wondering about, but that well name is shown where I circled on the plat.
It looks like Patriot's plan, at least last July when this plat was made, is to use the same pad site to drill both the 6A and 6B but for the horizontal leg of the 6B to run north though the remainder of Section 6, Blk C-5 and on into your Section 7.
The plat doesn't show the total length of the lateral planned for the 6B just that it would extend 2639 feet before it got to your section. If that second unit is similar to the one for the 6A it would have a total horizontal length of about 7700 feet and possibly include around 480 acres made up of the north 1/4 of Section 6 and east 1/2 of of your section.
Dusty,
Thank you so much for taking the time to respond to my post and for attachment . One relative thinks there is an “urgency emergency” for us to sign but I want to understand everything before doing so. I have had an attorney friend look at the agreement as well as an oil/gas accountant, but there have been some changes made since the original agreement. Today there was another version with the explanation being that they had a Division Order Opinion rendered that indicated some changes. Said it was likely to change again and was not material to the agreement itself.
Landman from Patriot Resources has sent a plat to my sister and I have it. Said they wanted to drill while equipment was in adjoining section and before leases expire. Could we stipulate they have to drill by a certain date? The date told to us for drilling was Dec. 22nd.
Are these PSA’s like forced pooling? We have been told Delaware plans to drill 4 wells but I have no idea if we would share in 4 wells or only Iguana 6B #2H. The agreement only names Iguana 6B #2H. The allocation is described as total acreage divided by acres owned. Is this the best allocation formula for owners?
No experience with PSA's. TennisDaze and others can definitely give you better advice there, but bottom line is get all the facts and consult a knowledgeable attorney before signing anything.
The rush act you appear to be getting and the idea you are "going to be left out of royalties" if you don't sign by a certain date doesn't sound right. You have signed a lease and aren't in a hold-out status like an unleased mineral interest. If you haven't seen the wording that the RRC added on Patriot's permit for the 6A (and all the similar two section lateral type permits they've recently approved) it says, "Commission Staff expresses no opinion as to whether a 100% ownership interest in each of the leases alone or in combination with a "production sharing agreement" confers the right to drill across lease/unit lines or whether a pooling agreement is also required. However, until that issue is directly addressed and ruled upon by a Texas court of competent jurisdiction it appears that a 100% interest in each of the leases and a production sharing agreement constitute a sufficient colorable claim to the right to drill a horizontal well as proposed to authorize the removal of the regulatory bar and the issuance of a drilling permit by the Commission, assuming the proposed well is in compliance with all other relevant Commission requirements. Issuance of the permit is not an endorsement or approval of the applicant's stated method of allocating production proceeds among component leases or units. All production must be reported to the Commission as production from the lease or pooled unit on which the wellhead is located and reported production volume must be determined by actual measurement of hydrocarbon volumes prior to leaving that tract and may not be based on allocation or estimation. Payment of royalties is a contractual matter between the lessor and lessee. Interpreting the leases and determining whether the proposed proceeds allocation comports with the relevant leases is not a matter within Commission jurisdiction but a matter for the parties to the lease and, if necessary, a Texas court of competent jurisdiction. The foregoing statements are not, and should not be construed as, a final opinion or decision of the Railroad Commission."
The formula you mentioned, of your acreage divided by the total acreage, is what typically applies with a pooled unit, and the unit Patriot formed for the 6A looks like a pooled unit, in which case I'd don't understand why a PSA is needed or how it would apply.
On your point about getting a commitment on the drilling date I doubt you would have any negotiating leverage to accomplish that, unless by not signing the PSA you were able to hold up drilling which I doubt would be the case.
On your question about how many of the four rumored wells you might participate in, it's a guess, but the layout of Patriot's 6A unit and the starting point that plat shows for the 6B makes it appear they may have plans for two more wells that would cover the rest of those four sections but your acreage would be included in only the 6B and participate only in it. That wouldn't be bad if you ended up with a 150 acre share of a 480 acre unit, and if more drilling was later done within that same 480 acre unit you would participate in that additional drilling.