Making the Cut

What does it mean if you are notified that your home is not part of a preliminary pooling unit? Should you be concerned? What should you do?

If you have received a “cut-out” notice, it most likely means that your property is located in an area that has generally not responded to a company’s mineral leasing offers. Due to increased expense, companies prefer not to run horizontal pipe in zigzag patterns a mile beneath the surface as they would need to do in a “patchwork” area where leasing is very scattered.

After some point in time, the company makes the decision to stop wasting time and money to go after certain leases. When a resident receives a “preliminary pool unit cut-out” notice some homeowners who have been hanging back and holding out actually feel as though they have missed out. These people then call the gas production company and want to be included. Unfortunately, after making a diligent effort to acquire the lease, Cherokee Horn has already withdrawn the offer and ceased communication.

Will a homeowner who calls be allowed back into the preliminary pool unit? No. Their call does not change the situation that prompted the “cut-out” notice. Can anything change their cut-out status? Perhaps.

After a preliminary pool unit is formed, Cherokee Horn works with Titan to decide on the boundaries that would geologically feasible for drilling a mile and a half under the surface. Titan then goes to the Railroad Commission with their final pool unit boundaries for permit.

By now, if a homeowner who is “missing the boat” goes out and gets all of the neighbors on their street who haven’t signed to sign they still would not receive an offer from Cherokee Horn. They will be turned away.

Can that cut-out resident still collect royalties on the natural gas? Yes, but not in a timely manner and at their expense. There are also no signing bonuses.

Under the rules of “forced pooling,” these homeowners can petition the Texas Railroad Commission to be included in the final pool boundaries and they will be paid royalty income after all other expenses for drilling the well have been paid. This process is complex, involves your attorney, and becomes cost-prohibitive for properties under 1 acre.

In the worst turn of events, this is the end of the line for a hold-out.

If you would like to research the Railroad Commission's process, you can read up on Rule 37 and information on the Mineral Interest Pooling Act (MIPA).

Comments

[Cherokee Horn]

Dear Ms. Osborn,
We do desire a mutually agreeable lease. We do not know which terms you were specifically looking to change, but some items in the contract, we cannot change. However, we want you to know that if your peace of mind comes from environmental or safety concerns, we have an excellent operating partner in Titan. We selected them based on their shared concerns for the environment and safe track record in our industry. Titan will be complying with all of the Flower Mound and Lewisville City Ordinances. You can read those at:

LEWISVILLE:
http://www.cityoflewisville.com/wcmsite/publishing.nsf/Content/General+Development+Ordinance

FLOWER MOUND:
http://www.municode.com/resources/gateway.asp?pid=13329&sid=43

Also, please contact our Flower Mound office and ask for Field Claytor to discuss the changes you desire. We will try our best to work with you. The number there is 972.539.1412.

[Jessica Osborn]

Dear Cherokee Horn,
You say you prefer mutually agreeable leases. However, I have asked for a few small changes to my lease and none of the changes have been agreed upon. I was not even asking for a higher bonus or royalties. I was asking for some peace of mind. Now I feel as if I'm being threatened with being cut out of the pool, when I was willing and trying to work with Cherokee Horn. This is disappointing to me.

[Cherokee Horn]

Dear Mr. Southwell,

You are correct, that Mr. Watts said that Cherokee Horn does not operate this way. May we suggest re-reading this blog post so that your misunderstanding is clarified about the Railroad Commission, not Cherokee Horn's rulings. We prefer to enter into a mutually agreeable lease with mineral owners in our units.

[Steve Southwell]

Ah, interesting for you to now bring up forced pooling. Your president, Jeff Watts, told a group of us that Cherokee Horn does not operate that way.

The consistency here is that Cherokee will say anything at any time.