Eagle Ford lease deadlines driving drilling

Updated 11:26 pm, Sunday, November 25, 2012

The rush is on in the Eagle Ford Shale, and some of it has more to do with legal contracts than extracting oil and gas from miles below the surface.

The clock is ticking on many of the mineral leases that South Texas landowners signed a few years ago after the first successful Eagle Ford well in La Salle County in 2008.

If oil and gas companies don’t start production soon, they could lose the right to drill. People who own mineral rights would be free to sign leases with other companies.

Leases vary but typically include an upfront bonus payment that holds the property for three years. Many leases signed in 2009 will expire this year, and those signed in 2010 expire in 2013.

Even after the initial period, many leases contain clauses that require companies to continue drilling.

Bobby Tudor, chairman and CEO of Tudor, Pickering, Holt & Co. LLC, an energy-focused investment bank in Houston, said many companies, particularly those working in areas that produce more natural gas than crude oil, are drilling quickly simply to meet the terms of their contract and keep their leases — not because they want to drill gas wells now.

“You have to drill a well to hold acreage,” said Tudor, who spoke at a media tour hosted by BHP Billiton Petroleum this month. “There’s a lot of that in America.”

Natural gas prices have fallen from more than $12 in 2008 to less than $4 today, making it largely unprofitable to drill gas-producing wells.

Tudor considers the Eagle Ford the second-most economical gas field in the United States, behind the Marcellus Shale in the Northeast. But even in the Eagle Ford, companies still have made a massive shift to drilling primarily for oil. “The vast majority of the gas in this country is not economic,” Tudor said.

Instead, most gas companies are biding their time until prices rise into the $4-to-$6 range and will only drill what they have to before then, Tudor said.

J. Michael Yeager, president of BHP Billiton Petroleum, said the truck traffic that has inundated South Texas is probably at its worst right now as companies build drilling pads and place rigs throughout the region in a race to meet their lease obligations.

“We’ve got all kinds of service vehicles running around,” he said. “It will dissipate. It is this peak level.”

DeWitt County Judge Daryl Fowler said he hopes that some large pipeline projects will start to move some of the truck traffic off the roads in South Texas. A large pipeline was recently completed — “Thank you Lord,” Fowler said — from the Permian Basin in West Texas to the Gulf Coast and was routed through DeWitt County. “We’re going to get more of that and slow some of that (truck traffic) down,” he said.

San Antonio-based attorney James Barrow said many leases stipulate how many wells can hold a lease, ensuring that companies can’t drill one well to hold thousands of acres.

“The oil company has no obligation to even set foot on the place. But they have an economic incentive,” he said. As long as they are producing or at least conducting operations, then all or some part of the lease will remain in effect.”

If there’s no production after a period of time, companies might lose the right to drill any deeper than they already have.

Barrow has a copy of the 1933 minerals lease for the King Ranch. It’s 17 pages long, and only about three pages “are the guts” of the lease. The rest is a legal description of the property.

Leases have become vastly more complex since then, and some companies have even built a business strategy on searching for expired rights.

Colby Williford is vice president of land with Momentum Oil & Gas LLC in Houston, a company focused on geologic formations that run deeper than the Eagle Ford, including the Edwards Limestone, Glen Rose Limestone and Pearsall Formation.

He said the leasing for those formations involved leasing blocks of land already leased for Eagle Ford production.

“Everybody was leased. You couldn’t just look at the courthouse and find the landowner that wasn’t leased. We looked for deep rights that had expired,” Williford said. “There’s multiple ways for deep rights to drop off and other rights to come open.”

 

Locking horns over oil field deer season
By Jennifer Hiller, San Antonio Express-News
Updated 12:37 am, Sunday, December 23, 2012

LIVE OAK COUNTY — The last light of day slips from the gray sky as Terry Retzloff spots a deer he’s been searching for all season.

The 11-point buck is about seven years old. He’s tough, having survived a nasty fight last year in which he got hooked and lost an eye. And he’s smart. The one-eyed buck rarely shows himself, but today emerges from the brush at a favorite spot of Retzloff’s, one with a bit of roll to the terrain and a view of live oaks.

In the background, accompanying Retzloff’s reverent regard for the animal, is the mechanical hum of a hydraulic fracturing crew that’s working 24 hours a day on a neighboring property, breaking open the Eagle Ford Shale to release trapped hydrocarbons. Drilling rigs and natural gas flares are visible on the horizon.

Retzloff lifts binoculars to his eyes.

“A one-eyed buck with hydraulic fracturing going on in the background,” he murmurs. “Oh, man.”

Across the Eagle Ford Shale region, oil and gas operations sometimes are taking a back seat to deer season. Some of the region’s largest landowners have worked provisions into their mineral leases that don’t allow drilling or hydraulic fracturing — at all — during white-tail deer season, which started Nov. 3 for a 30-county region of South Texas and ends Jan. 20.

But at smaller ranches like Retzloff’s 650 acres, both deer hunting and Eagle Ford production are in high season, existing side by side.

“We’ve lost privacy,” Retzloff said.

The downside of the oil business is the traffic, noise and occasional plastic bags or discarded soda bottles that crews leave behind. But Retzloff also has four wells producing oil and gas, improved roads in, out and across his ranch, and he thinks the oil company has limited its surface impact.

Deer hunting even occasionally is a topic of discussion when publicly traded companies talk about quarterly results with industry analysts.

In 2011, when someone asked Chesapeake Energy Corp. about the Eagle Ford, executives said the company was limited in the amount of oil it could produce. Part of that was due to trucking bottlenecks at the time, and “part of it was also completion prohibitions during the deer hunting season over the winter,” CEO Steven Dixon told analysts.

In “special cases,” the company provides white-tail deer hunting provisions for landowners, Chesapeake spokeswoman Haley Curry said by email. “We appreciate the heritage and culture of the outdoors and hunting sports in South Texas.”

Judon Fambrough, an attorney at the Real Estate Center at Texas A&M University, said deer hunting isn’t only culturally important, but practical, too.

Offering deer leases or guided hunts has been a way that ranch owners have been able to pay the bills and keep their properties intact over the years.

“A lot of times, your deer hunting has been a source of income for landowners. They really did it because they had to,” Fambrough said. “I’ve heard a lot of them say with the income they’re getting from oil and gas, they don’t need to have hunting. They’ve probably been shutting some gates because they don’t need the money.”

In some other cases, the mineral ownership and the surface ownership have been split, which can leave someone with a hunting property with all of the hassle and none of the benefit of oil and gas production. Deer stands and feed may be set up for months before a drilling rig pops up nearby.

“An oil company is a dominant estate,” Fambrough said. “They can use as much as they need without permission. You could have a hunter who is out time and money.”

Noise complaints

In general, hunters are not happy about the oil and gas activity.

“The deer hunting guys want the quiet and the stars and coyotes howling,” attorney James Barrow said.

And not all landowners thought to include deer season restrictions in their leases.

“I don’t think anybody at all could have expected the scope of activity that’s taking place now,” Barrow said.

The Eagle Ford has become one of the most productive shale fields in the United States. And because companies typically drill as close as possible to the edge of their lease line — giving them the ability to drill horizontally across the biggest percentage of their acreage — rigs often abut neighboring properties.

NewsBank InfoWeb
San Antonio Express-News
May 5, 1999
Zoning uproar
Converse nixes special election

Author:
Chuck McCollough;
Express-News Staff Writer
Edition: Metro
Section: Sun – Northeast
Page: 1H
Dateline: CONVERSE
Index Terms:
News – Local
Estimated printed pages: 3

Zoning uproar
Converse nixes special election

Author:
Chuck McCollough;
Express-News Staff Writer
Edition: Metro
Section: Sun – Northeast
Page: 1H
Dateline: CONVERSE
Index Terms:
News – Local
Estimated printed pages: 3

Article Text:
Citing potential lawsuits and six-figure legal fees, City Council here voted April 26 not to call a referendum election on the rezoning of land for a $9 million manufactured housing subdivision.

The council voted 5-1 to reverse its April 6 decision that a referendum election could be held to let voters say yes or no to rezoning of 101 acres from single-family housing to a mobile home district.

The council has flip-flopped several times on the case which first came up last fall when developer Joe Veytia of August Partners proposed a manufactured housing subdivision.

He needed the land rezoned from R-1 (single-family housing) to R-5 (mobile home district).

Veytia’s group plans to build a $9 million, 470-unit manufactured housing subdivision on the land in Rolling Creek subdivision, located off of Toepperwein Road.

Mayor John Steinberg said he voted to stop the referendum election process for several reasons.

“A property owner has a right to develop their land the way they want if is it zoned correctly. Also, we were advised that defending a lawsuit by the landowner or developer could cost the city a minimum of $100,000,” the mayor said.

Steinberg and several other council members who voted not to allow the referendum petition vote, said the manufactured housing subdivision will bring in badly needed tax revenue and will not lower property values as opponents have claimed.

Councilman Craig Martin cast the only vote against stopping the special election.

“It has been clear to me all along how this was going to come out because the vote has been consistent across the board (in earlier council meetings),” Martin said.

“The 30 percent of the registered voters in this city (who signed the referendum election petition) want this to be voted upon. They deserve to be represented,” he said.

Bill Manning, one of the petition organizers, did not rule out legal action by his group which gathered 1,646 signatures to put the rezoning case on the ballot for voters to decide.

“We are looking at several options,” he said, declining to say what they are.

“I am not disappointed or surprised by the council vote. This council has questioned our motive, our ethics, our character and our morals over this petition issue,” Manning said.

The City Council on two earlier votes approved the rezoning case on split votes. The second vote was taken after many area residents complained they did not know about the first vote.

Some of those residents then started a petition asking that voters be allowed to decide the rezoning issue on the May 1 ballot.

Questions about the number of eligible voter signatures on the petition delayed the issue from being placed on the May 1 ballot.

However, a recount showed enough sufficient voter signatures. The petition was certified and the council voted April 6 to move forward with the process to call a special election in August.

Based on information from the city attorney during the April 6 meeting, the council believed the rezoning of the 101 acres was subject to the referendum provision in the city charter, Mayor Steinberg said.

City Attorney Ray Ortiz did further research and concluded that the city charter’s referendum provision does not apply to the zoning process after all, and the council was not legally bound to call an election, Steinberg said.

Council members also were told that defending a lawsuit by the land owner or developer Veytia – who has a contract to buy the property – could cost a minimum of $100,000.

Ortiz also told council members they might be individually liable for damages from a land owner/developer lawsuit, the mayor said.

Based on Ortiz’s revised legal opinion and his predictions on the cost of defending a lawsuit, the majority of the council voted April 26 to kill the petition election process.

At an earlier meeting on April 20, the council held a three-hour meeting that included Bible-quoting, finger-pointing and name-calling concerning the petition. Council members tabled the matter at that meeting to get more legal opinions and reconvene on April 26.

During the April 20 meeting, developer Veytia quoted from the Bible and pleaded with the council to do the right thing “for the poor” of Converse.

After saying his partnership would make a $4 million profit off the project, if it is fully developed, Veytia said “I am not doing this project for the money, I am doing it for the poor.”

The April 20 and April 26 council meetings were videotaped by a cameraman hired by James Barrow, lawyer for the land owner Rick Sheldon Real Estate Properties (which has a contract to sell the land to Veytia).

“We want an accurate record of the meeting, what took place,” Barrow said.

When asked if the taping might have been intimidating, Barrow said there was no attempt to do that.

At least one council member said privately the taping felt like an attempt to intimidate.

Copyright 1999 San Antonio Express-News
Record Number: 427942

Farm, ranch law emerges as a specialty

San Antonio Express-News
Page 1G
Joe Fohn Express-News Farm & Ranch Editor
Publication Date : April 11, 1993

It’s a specialized field, where thorny legal issues can crop up faster than unwanted weeds.

And though Texas lawyers have dealt with agricultural issues since the days of Sam Houston, the fast-changing face of an age-old industry now leads some of them to seek certification as specialists in farm and ranch real estate law.

In the 10 years since the State Bar of Texas created the specialty one of three real estate subspecialties, the others being residential and commercial only 114 of the state’s 54,000 lawyers have undertaken the course work, peer review and examination process that leads to certification.

Nine of these, however, are located in San Antonio, where the area’s culture and business, not to mention its land titles, are deeply rooted in a ranching heritage. Areas covered

The specialty covers areas of acquisition, ownership, leasing, financing, transfer and disposition of farm and ranch property. It also deals with ad valorem, mineral and environmental issues that may arise, according to the Board of Legal Specialization.

Gary McNeil, the specialization board’s executive director, noted that a lawyer may seek certification in more than one specialty.

Thus, 6,339 certifications have been issued since 1975, but 5,114 lawyers are board-certified specialists.

One business advantage for those who obtain certification is that a lawyer who advertises expertise in some certain area of law, the advertisement must contain language reflecting that he or she is, or is not, board-certified as a specialist in that area.

Certification isn’t automatic on request. It requires applicants to obtain recommendations from judges and colleagues, and to establish substantial involvement in a particular field, according to the specialization board.

“You have to apply, and show you have sufficient experience in the area,” McNeil said in a telephone interview from his Austin office.

That would mean not only an applicant’s years of experience, but also what percentage of his or her practice is spent in that specialty.

Next comes a peer review, plus a review of the applicant’s continuing education courses in the chosen area of specialization and a check for past disciplinary problems, according to McNeil.

“After all that, you have to take a six-hour examination,” he said.

Certification is granted only for a five-year term. Re-certification doesn’t mean taking the exam again, but it does require another peer review and a continuing-education check, plus evidence that the lawyer remains active in the specialty, McNeil said.

Getting certified can take months, he said, estimating that if a lawyer applied in the spring, the review may be completed in time for an October examination, whose results would be reported by about December.

While most applicants do gain certification, McNeil said, “It’s not a given.”

About 8 percent to 10 percent of applications are rejected, and of those who take the examination, 25 percent to 30 percent may fail, according to McNeil.

Among those recently certified in farm and ranch law is James Barrow, 33, of the San Antonio firm of Kaufman, Becker & Reibach Inc.

Barrow is a San Antonio native, but his parents grew up in the ranch country of Atascosa and Frio counties. The family owns land in Frio and La Salle counties, and Barrow said, “I’ve always been real interested in it.”

Barrow, who began practicing law in 1984, is board-certified in commercial as well as farm and ranch real estate law.

Overall, he said, certification has benefited his practice.

“It’s made me work smarter. I think I have a higher standard to uphold,” he said.

On the other hand, Barrow added, there are a lot of specialists who are very talented though not board-certfied.

About half his practice involves agricultural issues, the rest commercial real estate, Barrow said.

“Law practice is always kind of an evolving thing. The farm and ranch area seems to be growing a lot,” he said.

Part of that growth has come with increasing regulation that affects agriculture, he said.

For example, Barrow noted that 50 years ago there was no federal Endangered Species Act.

More work has arisen involving land titles and property conveyances, Barrow noted, as “More and more (land) is getting divided.”

He said, “By far, most of the farm and ranch work I do is transfer of land.”

Besides title transfer, there also can be tax issues as well as environmental issues that may be attached to a parcel of land if it contains endangered species, underground storage tanks or solid waste all subject to some degree of state or federal regulation.

A potential ranch buyer, for example, may want to know what liability may accompany a trash dump behind the pens, Barrow said.

Barrow said he tries to stay current on the status of candidate species proposed for listing as endangered species in South Texas.

Other special issues may involve access and easements, as well as the legal implications of river frontage on a piece of property, he said.

Frequently it’s not just the buyer, but the buyer’s lender who wants to know about environmental implications of a land transaction, Barrow said.

San Antonio lawyer Tom Joseph obtained board certification in the farm and ranch specialty the first year it became available, in 1983.

“When I had an opportunity to specialize, I jumped at it,” he said.

Like Barrow, Joseph is a multiple specialist he has four in all, counting farm and ranch, residential and commercial real estate as well as certification as a civil trial lawyer.

The latter specialty helps him to gain credibility in cases that may be likely to end up in litigation. On the other hand, it also provides insight into what can and can’t be accomplished in the courtroom, he said.

Joseph, 55, said he has handled litigation involving oil and gas, land title, easements “just about everything in this world having to do with the land.”

As a specialist in farm and ranch real estate, he said, “I get an opportunity to meet and talk with a lot of people of the land. They still harbor the principles that I think made our country great.”

He said he may not have earned more as a specialist than if he were not board-certified. However, Joseph said, “We probably are a bigger target, those of us who specializ ”

He said, “As far as I’m concerned it would be a very good future for a lawyer today to involve himself in farm and ranch law.

“To me, that’s where the future is.”

Joseph cited two key issues in the future of farm and ranch real estate law: the environment and water.

“I think that’s going to be the biggest issue this country will ever face, the use of water,” he said.

Other agricultural issues involve the usage of pesticides and insecticides, he said.

Joseph said his practice sometimes has involved helping a farmer get a new crop in the ground in order to pay off creditors especially during the recent credit crunch.

“Again, it required me to have good knowledge of farm and ranch law,” Joseph said. Not just book knowledge, he pointed out, but also knowing “how a crop goes in the ground.”

Of agriculture’s growing environmental responsibility, he said that ensuring compliance with the requirements of law one day could “take more time than planting and harvesting the crops or managing the cattle.”

He said, “When you negotiate a transaction your contract has to be sure and cover the environmental side.

“That can have liability ‘way down the line.”

Joseph said of his legal work, “When it’s involving land, I love it.”

A piece of land is unique, unlike any other in the world.

“It’s precious as a diamond,” he said.

Specialized work in the legal aspects of agriculture doesn’t always involve lawyers.

A San Antonio area agricultural management consultant said he sometimes has been called in for research involving agriculture-oriented court cases.

Alan W. Reichardt, of Helotes, said that one such case involved a vegetable grower and a packing company.

The packer had sued the grower for half the losses sustained by their partnership enterprise. The grower claimed that if the packer had put more money into producing the crop, there wouldn’t have been a loss, Reichardt recalled.

“I was hired to try and determine whether or not there would have been losses,” he said.

Using the grower’s record to determine planting dates, plus weather records for that growing year and vegetable market data from the U.S. Department of Agriculture, Reichardt said he projected an enterprise budget for an operation similar to the partnership.

His calculations, he said, “indicated that based on that, it would’ve made money.”

While the court did find the grower was liable, it reduced the amount of money owed, Reichardt said.

Reichardt, of Tejas Engineering and Management, said his background includes 10 years as a farm management specialist for the Texas Agricultural Extension Service plus seven years as a professional farm manager for a bank.

He said he knows of two other consultants one of them also in San Antonio who perform similar services.

Of expert testimony, he said, “You’ve got to be thorough in what you do.

“You’ve got to cover all the bases, because you’ve got somebody up there who’s going to do his durndest to pick you apart.”