A Different Kind of Lease
As just one of many communities perched atop of what experts are now calling one of the biggest natural gas plays in North America, Woodhaven has forged for itself an interesting story to tell.
During an 8- to 10- month stretch in 2005, Four Sevens signed royalty leases for its drilling sites with Woodhaven’s commercial, apartment and residential property owners, as well as executing leases on vacant land in or adjacent to Woodhaven. Woodhaven received a 22 percent royalty and a signing bonus based on $650 an acre, with a $250 minimum per home lot; $100 for a smaller condominium unit.
What made this situation different — some would even call it unique — was that Four Sevens permitted Woodhaven Community Development (WCD) to hire its own attorney and prepare a community lease subject to its approval. WCD hired an oil and gas attorney from the firm of Harris Finley and Bogle. After many meetings between WCD, the presidents of seven Woodhaven Property Owner Associations (POAs) and Four Sevens, including a town hall meeting attended by approximately 500 people, a 27-month, non-mandatory “Community Lease” was signed by an unprecedented 94 percent of residential property owners.
The details that made Woodhaven’s community lease agreement unique include its design that controls how leasing and drilling takes place in the Woodhaven neighborhood and the way in which it equalizes the lease’s signing bonuses and royalties. A special provision made by Four Sevens paid an additional $300 per acre to each of the POA’s and WCD for their assistance in communicating aspects of the lease to Woodhaven residents. The monies received by WCD went into its general fund to be used exclusively for the redevelopment of Woodhaven.
A Different Kind of Deal
Woodhaven’s lease agreement is different from other homeowner association groups in not only the consensus it reached, but also in a few particulars exclusive to this agreement.
The lease’s particularly favorable terms include a "continuous drilling" clause that requires a new well to be drilled at least every 18 months. This provision prevents an operator with a large backlog of undrilled leases from drilling just one well to satisfy the lease deadline before moving on to other leases.
Under Woodhaven’s community lease, royalties are based on the gross price of natural gas produced, with no deductions related to treating the gas or piping it to market.
Another big difference in Woodhaven’s lease is that while a typical lease pools a homeowner’s property with others to form a unit — and homeowner royalties come only from the well or wells in their units — Woodhaven’s lease splits all the royalties from all the wells on all the units in the lease, based on individual lot size. So for Woodhaven’s individual property owners’ returns will depend on the entire collection of wells in the lease, not any single well.
Progress Report
The first two wells were drilled by Four Sevens in 2006 at a site known As Goodman 1 and 2H. The bores were mostly under Woodhaven Country Club and an apartment complex. With only 12 percent of the acreage in that unit belonging to homeowners, everyone in the lease split 12 percent of the 22 percent royalty from these two wells.
When Four Sevens sold its drilling rigs, leases and other assets to Chesapeake Exploration Limited Partnership of Oklahoma City in late July 2006, it assigned its interests in Woodhaven’s lease properties as part of this transaction. According to a Chesapeake spokeswoman, Chesapeake plans to drill at least 18 wells on eight units.
Five bores were drilled from the Sunset Oaks pad west of Loop 820 and north of Interstate 30. These wells came on stream in early 2008. The bores run northwesterly beneath vacant land, Country Club fairways and residential housing.
From a well pad just north of the Trinity River, eight more bores were drilled and fractured under Woodhaven and each is now producing gas. This pad is known as the "Trimble" pad. It came on stream in September 2008.
Also coming on stream is a well located on the hill behind the Shiloh Church, known as Woodhaven 2H. This bore is beneath Woodhaven and produces gas royalty for those that signed the “Community Lease.”
To date there are 16 producing gas wells paying royalties to Woodhaven residents from four pads: Goodman, Sunset Oaks, Trimble, and Woodhaven.
Chesapeake’s compression station near the Goodman pad is located just north of Randol Mill Road and east of Quanah Parker Park. As of this report, the laying of transmission pipe has not been an issue for any Woodhaven property owner.
Information of interest
- The Barnett Shale’s 27 trillion cubic feet of trapped natural gas is, scientists say, enough natural gas to heat all of America’s gas heated homes for five years.
- As much as 400 feet thick in some places, the Barnett Shale is the result of millions of years of decayed organic material.
- Urban drilling has never been done on this scale. With more than 90 gas rigs dotting the Fort Worth landscape, there are more holes poked in our Metroplex than in either Africa or Europe.
- The Barnett Shale stretches under 16 counties and the homes of 1.6 million people.
- It wasn’t until 1997, after years of trial and error that Mitchell Energy figured out a way to get the gas out of the thick black rock. Mitchell sold to Devon Energy in 2002 for $3.2 billion.
- Using a fracturing technique that involved sand, water and tremendous air pressure, the cracks in the rock allow the trapped gas to escape into the well.
- It takes about 100 times the pressure of the air in a car tire to crack the shale.
- Each well requires several million gallons of water — enough to fill the reflecting pool in front of Washington’s Lincoln Memorial.
- Texas Railroad Commission stipulates that a gas well must be at least 330 feet away from any unleased property and 400 feet away from the nearest home.
- Horizontal wells go straight down about 7,000 feet before gradually bending and running parallel to the surface.
Drilling for Natural Gas Faces Hurdle: Fort Worth The Wall Street Journal Online - May 4, 2005