Your TMS Information Source Since 2012

Have a TMS tip? Share it here and keep up with latest on our Facebook Page or Twitter!


Why the Rush to Permit so many Units!

Posted by bernell on August 31, 2014

A few of you have noticed that these companies have what would appear to be a 20 year supply of units permitted and are aggressively applying for more leases.

What's up with that?

Well, here's the deal.  These are Mississippi units.  They don't do that much in Louisiana.


Well, for one thing, in Mississippi all you need to have is 30% of the leases and swear out an affidavit that you have attempted to find and lease from everyone in the unit, so applying for these permits is an easy thing to do. 

(Apparently there is no consequence for falsifying these affidavits about attempting to find and negotiate a lease, because I assure you ... never mind... just trust me, all these companies see is the 30% rule. Once they get that, the rest of it is just a rubber stamp anyway.)

Now, in Lousiana, I'm told, 100% of the leases have to be obtained before a unit can be permitted....someone correct me if I have misunderstood....and this is also why the bargaining power of mineral owners in Louisiana is much stronger than folks in Mississippi.

I will say that this is changing and will become a regret by these operating companies in the not too distant future as other mineral leasing companies have begun to take up the slack and are leasing small left over tracts.

BUT, back to the original question...Why are these companies rushing to get drilling permits?

Well, the operating company gets to spread overhead on to the wells it operates.  So, if you operate a well and have a staff of petroleum engineers, geologist, office staff, company officers and personal assistants, accountants, janitors, etc...The more wells/units, the more costs can be spread out over the more wells, the more these folks can be paid...especially the company officers!

And, in Mississippi a unit represents a likely minimum of 8 wells in a 2,000 acre unit...I'm thinking it could be 12-16 before it is over with, but even if it is only 8, that's still a fair amount of overhead that can be absorbed.

So, this is why you see 25+ undrilled units for Halcon, EnCana and Comstock.  Apparently Goodrich must control its areas enough such that it isn't worried about encroachment, so it doesn't keep much in the way of an inventory of units ahead.

Sanchez doesn't have quite the inventory of the others, but Sanchez is playing catch up in the department. 

So, there you go!  The more units permitted, the more you can make plans for future office staff and salaries!

What do you think about it?