During the past several months land agents have been busy negotiating leases with freehold mineral owners in the area considered prospective for Duvernay shale oil production between Ponoka and Cygnet.
Vesta Energy Ltd. has brought on production more than 20 deep horizontal Duvernay wells in the Lacombe area which initially produce upwards of 200 barrels of oil per day.
Vesta is now expanding northward with recent wells in the Morningside area and southward with wells in the Cygnet area. Vesta is actively leasing freehold in both areas.
Concurrently, Mammoth Land is leasing deep Duvernay freehold mineral rights in the Ponoka area.
In recent months, I have received many phone calls from freehold owners requesting help with leasing.
Freeholders advise me that Vesta offers modified CAPL 99 leases and Mammoth offers modified CAPL 91 leases. Both offer fixed royalty rates of between 12% and 15% and have modified the offset well provisions to minimize the freehold owner’s protection from drainage.
The new Crown royalty regime became effective on Jan. 1st, 2017 and has drastically unbalanced the Crown/freehold playing field.
Companies that drill new wells on Crown land pay a 5% royalty until payout of the well’s drilling and completion costs.
Horizontal Duvernay wells cost $5-15,000,000 to drill and complete.
In addition to the obvious royalty difference, a good oil well on freehold results in freehold mineral tax equivalent to a 6% royalty.
A company’s effective royalty burden for a freehold well is therefore three to four times greater than the burden for the same well on Crown.
The Freehold Owners Association’s (FHOA) believes that if freeholders want their mineral rights developed, we must tailor our lease demands to compete with the Crown.
The Crown’s lower royalty rate is compensated by higher lease bonus prices.
Mammoth paid $227.43 per acre for 9,500 acres of Crown deep rights in the Ponoka area in February – far more than the bonuses offered to freeholders.
In March, a land agent paid $2,084.13 per acre for a section of deep rights near Cygnet adjacent to Vesta’s subsequently drilled well.
Addendums to CAPL 91 leases have been developed by FHOA Director Brad Murray to compete with the Crown and by FHOA President David Speirs to protect freeholders from insolvent lessees.
FHOA Director Ron Young has created a cost-effective estate planning vehicle to prevent title fractionation.
For further information – FHOA Seminar – Ponoka Legion Hall, 3911 Highway 2A, July 27th from 7 – 9:30 p.m. Registration at 6 p.m. Cost – $20 members; $30 non-members. Light supper available for $10.
Else Pedersen, FHOA past president and director