Landowner Considerations: Eagle Ford Shale Leases

Posted on Jun 3, 2011

The last two years have seen a tremendous upturn in leasing activity in south Texas with E&P companies competing for positions in the Eagle Ford shale play, which spans in area running northeast to southwest from Grimes County on the northeast end of the play to Maverick and Webb counties on the southwest end of the play. Companies have leased, and continue to lease huge blocks of acreage, and oil and gas leases in this play have become sophisticated and complex agreements. Mineral owners who also own the surface of their land, when effectively represented in lease negotiations, are able to achieve maximum economic benefits with reduced disturbance to their surface activities or operations. What follows are three of the numerous issues landowners should consider when negotiating oil and gas leases in the Eagle Ford shale trend.

Water. Horizontal drilling operations require substantially greater water supplies than those required when drilling traditional vertical wells, often consuming hundreds of thousands of barrels during fracture stimulation operations. Water has become a precious and valuable commodity in these operations. Landowners should evaluate the availability of water on and under their property and should negotiate for the use or non-use of water and the cost to be charged to the lessee for such use. Landowner’s should also carefully consider the manner in which used water will be stored and later disposed of after being used in the lessee’s drilling operations.

Surface Sites. Improved drilling technology gives Eagle Ford lessees greater flexibility in selecting surface locations for drill sites. Companies are able to drill multiple well bores from single, oversized locations, known as “super pads,” and these super pads can often times be limited to perimeter locations on the property to minimize interference with other surface activities. All structures, habitats, water wells and activities or operations taking place on the surface of the land should be identified and prioritized by landowners as part of their lease negotiations.

Well Completion Times. After Eagle Ford wells are drilled, they generally undergo fracturing to stimulate production of oil and gas. Due to the level of activity in the trend, the time that elapses between the end of drilling operations, and the completion of the well through the fracture stimulation process, can be lengthy, sometimes spanning many months. Landowners need to understand and carefully consider these timing issues both from an expectation standpoint when it comes to royalty payments, and from the standpoint of negotiating deadlines for conducting operations that are tied to the date a well is “completed.”

The issues identified above represent three of many issues landowners should consider in negotiating an oil and gas lease in the Eagle Ford shale trend. Knowledge, whether through education and/or the assistance of a trained legal representative, is the best tool a landowner can have in the lease negotiation process.