Avoiding Lease Jeopardy in Shale Plays Leveraging information assets to minimize risks of non-compliance

“Cheated out of millions?”

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Plaintiff’s Attorneys are Taking Note

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Search Results: “Oil and Gas Royalty Lawsuit”

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Royalty “Specialists” Emerging

“There may be circumstances that provide an opportunity to break an existing oil or gas lease, freeing you to negotiate a new, more favorable lease at current market royalty rates.”

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8/31: HBJ, “Chesapeake faces lawsuits…”

“…increasingly besieged with landowner lawsuit claims of underpayment of gas royalties and related leasehold disputes.”

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Lease Compliance: A Critical Issue

Not a new concept Uniqueness in each play – O&G Law Maturity

› E.g. AR, PA vs. TX

– Lease standardization extremes, for example: › Barnett (many small tracts – high degree of standardization) › Eagle Ford (large ranches – proprietary lease documents)

– Plaintiff lawyer quality and ability Risks: – Lease jeopardy – Fees – Litigation – Time

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Case History

BB Energy, L.P. v. Devon Energy Production Company, L.P., 2008 – (WL 2164583)

– Contract language held that Pugh clause not relevant since no pooling had taken place

ANDERSON v. HESS CORPORATION No. 10–3116. – http://scholar.google.com/scholar_case?case=4159234918805300864

– Affirmed sensitivity date of Continuous Drilling to be date of cessation of general

operations due to contract language

Bledsoe vs. Forest Oil (decided in 2011) – http://scholar.google.com/scholar_case?case=3498925303401075223

– Found that continuous drilling savings provision was in effect after frac date upon appeal

(vs. perforation or casing dates)

Many, many more...

Illustrates critical care needed in crafting and tracking these provisions

“You feel like you’ve got a gun to your head:

you’ve got to drill a well or you’re going to lose a

lease.”

Gary Evans - CEO, Magnum Hunter

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Business Drivers for Change

Operations

Novelty

Competition

Velocity

Value

Legal

Tort Reform

“Deep Pockets”

Sophisticated

Owners

Consumer

Perception

Land

Lease

Complexity

Lease

Standardization

IT

Data Silos

Data Quality

Issues

Product Feature

Lag

Land Administration Oversight

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Lease Compliance: Strategy

Cross-departmental concern – No single department has “the whole story”

– Conventional land software not enough

– Land Administration oversight not standardized

Current state of the art – “Landman and a Spreadsheet”

– College interns

– Paper / Manual process

“Land Administration employees protect the Company’s assets, including its oil and gas leases and the wells which are drilled on those leases. Typical job duties include assisting in the analysis of provisions of various leases, deeds, rights of way, and agreements involving Company assets in order that a property record base can be created or maintained.” -Anadarko [on its website]

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Case Study: Background Information

Operations – Eagle Ford under active development – Other Shale Plays

Legal – Land Administration responsibility

Land – Many complicated leases

IT – Multiple system vendors

Success Requires a Focused Team Effort

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Case Study: The Process

• Enumerate Critical Provisions

• Define Input Parameters (Key Dates, Key Quantities) Step 1: Lease Review

• Locate Systems of Record

• Map to Destination Systems Step 2: Data Mapping

• Correct inconsistencies in existing data set Step 3: Data Cleansing

• Link Disparate Systems

• Synchronize copies to master Step 4: Integration

• Capture initial lease provision inventory

• Establish go-forward workflow to maintain provision inventory

Step 5: Lease Provision

Tracking

• Assign business owners

• Define sensitivity cases

Step 6: Alert

Configuration

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Case Study: The Whole Story

Production

Production

Volumes

Well Status

Drilling

Spud Dates

Casing Dates

Perforation Dates

Rig Release Dates

Fracture Dates

P&A Dates

Land

Standard Lease

Provisions

Custom Lease

Provisions

Other

Marketing: Sales

Price

ERP: DOI

DrillingInfo.com:

Offset Well

Locations

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Enterprise Lease Compliance Solution

Case Study: The Solution

Drilling

Production

Land

Lease Compliance

Management

Sync

Reports

Alerts

Send

Lease Provisions

Capture

Other Configure

Key

Source Data

Entrance Solution

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Case Study: The Results

Lease Provision Tracking – Royalty Escalation – Cessation of Production – Pugh Clauses – Continuous Drilling/Operations

› Well-based: including Banked Wells

› Time-based: including Deferment Days

– Other Custom Provisions

Ongoing Iterative Process – Master data management (new systems, etc.) – Establishing “permanent” business data owners

Questions? Learn more at www.EntranceSoftware.com/LeaseCompliance