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Tuesday, October 25, 2011

Advantages of Drilling Your Own Well




Oil and gas law in the State of Texas operates under the rule of capture as the fundamental law governing the rights of landowners owning petroleum in a common reservoir. It is settled law that landowners absolutely own all of the oil and gas in place under their land.



Farmout, Joint Venture, Working Interest Provides
Tax Benefits For Landowners 

Direct participation in oil and gas development by either JV, joint operation, farmout, or having a working interest can generate several tax benefits for landowners. By deferring a large up-front bonus payment, common to a Paid Up oil and gas lease, in favor of direct participation, generous tax benefits can flow to landowners from directly participating in the drilling of a well. Some landowners find the large up front deductions for intangible drilling costs (IDC) and tax credits for the development of certain types of tight sands and shale formations to be more attractive. The IRS allows deductions for the cost of equipment and/or services used during the drilling, testing, fracking, and/or completion of the well.

Direct participation through Farmout, Joint Venture or other Working Interest in a well offers the following tax benefits.


Intangible Drilling Costs (IDC): The cost of drilling a well can usually be deducted immediately. The cost of labor, drilling rig time, drilling fluids, fracking services, etc. are intangible expenses deducted against the tax bill. Intangible drilling cost represent 60 to 80% of the total cost of the well. intangible Drilling costs is generally taken as a deduction in the tax year in which the intangible costs occurred.

Intangible Completion Costs: As with IDCs these costs are generally related to non salvageable completion costs, such as labor, completion materials, completion rig time, fluids etc. The deduction for intangible completion costs are usually about 15% of the cost and generally taken in the year they occur.

Depreciation: That part of the cost of the well associated with equipment, such as the well casing, Christmas tree, storage tanks, pumps, etc. are usually depreciated over a seven year period.

Depletion Allowance: Some say depletion allowance is the mother of all tax breaks. Once a well begins production, the IRS allows owners of the well to shelter some of the gross income derived from the sale of the oil and/or gas. Two types of depletion are available, cost and statutory (also referred to as percentage depletion). Cost depletion is calculated based upon the relationship between current production as a percentage of total recoverable reserves. Statutory or percentage depletion is subject to several qualifications and limitations. This deduction generally shelter's 15 per cent of the well’s annual production from income tax.

Tax Credits: The US Congress passed laws granting several tax credits to crude oil or natural gas production. Enhanced Oil Recovery legislation grants tax credits when applied to certain project costs incurred to enhance production from a oil or gas well. The credit can be 15% of the costs directly incurred to enhance production. Another generous credit is the Non Conventional Source Fuel Credit which provides for a $3 per barrel of oil equivalent credit for production from the so called qualified fuels. Qualified fuels include oil shale like the Eagle Ford, other tight formation gas, and fuels made from coal.
Lease Operating Expense: Day to day operational costs involved with the operation of a crude oil or natural gas well also offer tax deductions. The expense deduction also covers the costs of re-entry or re-work of an existing producing well. Lease operating expenses are generally deductible in the year incurred, without any AMT consequences.

Overview

It should be entirely obvious by now that the tax benefits of participating in a oil or gas well on your property generates substantial tax benefits. In a nutshell, oil and gas risk capital has the effect of being subsidized by the government resulting in greatly reduced federal income tax. Some people say that oil and gas exploration and production uniquely offers a bonanza of tax benefits not seen in any other business enterprise. Intangible drilling cost is very significant and by taking this deduction it mitigates greatly against the loss of any lease bonus money from a oil and gas lease agreement. I am not an accountant and I encourage everyone to consult with their own tax adviser in regards to the information provided herein.

Tuesday, August 30, 2011

Eagle Ford Water Issues In Depth: Changes On The Way


Water issues In The News
A Comprehensive Study of Water Management Planning in
the Eagle Ford Shale


Texas Oil & Gas
Accountability Project
Amid increasing scarcity of water
supplies, the immense quantities of
water required for hydraulic fracturing
are not sustainable. Huge volumes of
water are needed to extract shale gas.
Estimates range from 1.5 million to five
million gallons of water per well, and
wells may be refracked several times
over the life of each well. Recently, the
oil and gas industry announced a new
12-stage completion method that uses
over 9 million gallons of water per
well.

San Antonio Current
Final projections for the Eagle Ford have since been
shifted up as high as 45,000 acre-feet (14.6 billion
gallons) at peak production — now expected to hit
seven years earlier in 2024. Last year, the formation
required around 6,000 acre-feet of water. This year’s
activity has been considerably more demanding that
that, creating a market for water sales from the
region’s ranches.

Wednesday, August 24, 2011

The Art of War (Business Tactics) by SunTzu


The Oil companies don't play fair, they are ruthless competetors who will go to any length to get what they want, your land cheap! Prepare yourself for dealing with the Oil Company by studying Sun Tzu, because those tactics are what you are facing in any negotiations or business dealing with them. The Oil Company wages war on Landowners. Understand Sun Tzu and you have a fighting chance, without that knowledge, you are toast.

The Art of War is an ancient Chinese military treatise that is attributed to Sun Tzu (also referred to as "Sunzi" and "Sun Wu"), a high ranking military general and strategist during the late Spring and Autumn period (some scholars believe that the Art of War was not completed until the subsequent Warring States period[1]). Composed of 13 chapters, each of which is devoted to one aspect of warfare, it is said to be the definitive work on military strategies and tactics of its time, and is still read for its military insights.
The Art of War is one of the oldest and most successful books on military strategy in the world. It has been the most famous and influential of China's Seven Military Classics: "for the last two thousand years it remained the most important military treatise in Asia, where even the common people knew it by name.”It has had an influence on Eastern military thinking, business tactics, and beyond.
Sun Tzu emphasized the importance of positioning in military strategy, and that the decision to position an army must be based on both objective conditions in the physical environment and the subjective beliefs of other, competitive actors in that environment. He thought that strategy was not planning in the sense of working through an established list, but rather that it requires quick and appropriate responses to changing conditions. Planning works in a controlled environment, but in a changing environment, competing plans collide, creating unexpected situations.


  • The art of war is of vital importance to the State. It is a matter of life and death, a road either to safety or to ruin. Hence it is a subject of inquiry which can on no account be neglected


  • All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near. Hold out baits to entice the enemy. Feign disorder, and crush him.

  • If your enemy is secure at all points, be prepared for him. If he is in superior strength, evade him. If your opponent is temperamental, seek to irritate him. Pretend to be weak, that he may grow arrogant. If he is taking his ease, give him no rest. If his forces are united, separate them. If sovereign and subject are in accord, put division between them. Attack him where he is unprepared, appear where you are not expected.

  • "The art of using troops is this:
......When ten to the enemy's one, surround him;
......When five times his strength, attack him;
......If double his strength, divide him;
......If equally matched you may engage him;
......If weaker numerically, be capable of withdrawing;
......And if in all respects unequal, be capable of eluding him,
..........for a small force is but booty for one more powerful."

  • "Regard your soldiers as your children, and they will follow you into the deepest valleys.
        Look on them as your own beloved sons, and they will stand by              by you even unto death!"
  • the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to w in or lose.

  • He who wishes to fight must first count the cost. When you engage in actual fighting, if victory is long in coming, then men's weapons will grow dull and their ardor will be dampened. If you lay siege to a town, you will exhaust your strength. Again, if the campaign is protracted, the resources of the State will not be equal to the strain. Now, when your weapons are dulled, your ardor dampened, your strength exhausted and your treasure spent, other chieftains will spring up to take advantage of your extremity. Then no man, however wise, will be able to avert the consequences that must ensue... In war, then, let your great object be victory, not lengthy campaigns.

  • Though we have heard of stupid haste in war, cleverness has never been seen associated with long delays.

  • It is only one who is thoroughly acquainted with the evils of war that can thoroughly understand the profitable way of carrying it on.

  • Bring war material with you from home, but forage on the enemy... use the conquered foe to augment one's own strength.

  • In the practical art of war, the best thing of all is to take the enemy's country whole and intact; to shatter and destroy it is not so good. So, too, it is better to recapture an army entire than to destroy it.

  • To fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy's resistance without fighting.

  • Thus the highest form of generalship is to balk the enemy's plans, the next best is to prevent the junction of the enemy's forces, the next in order is to attack the enemy's army in the field, and the worst policy of all is to besiege walled cities.

  • There are three ways in which a ruler can bring misfortune upon his army: By commanding the army to advance or to retreat, being ignorant of the fact that it cannot obey; This is called hobbling the army. By attempting to govern an army in the same way as he administers a kingdom, being ignorant of the conditions which obtain in an army; This causes restlessness in the soldier's minds. By employing the officers of his army without discrimination, through ignorance of the military principle of adaptation to circumstances. This shakes the confidence of the soldiers.

  • He will win who knows when to fight and when not to fight. He will win who knows how to handle both superior and inferior forces. He will win whose army is animated by the same spirit throughout all its ranks. He will win who, prepared himself, waits to take the enemy unprepared. He will win who has military capacity and is not interfered with by the sovereign.

  • If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.

  • The good fighters of old first put themselves beyond the possibility of defeat, and then waited for an opportunity of defeating the enemy. To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself. Thus the good fighter is able to secure himself against defeat, but cannot make certain of defeating the enemy.

  • Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated.

  • The victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.


  • Fighting with a large army under your command is nowise different from fighting with a small one: it is merely a question of instituting signs and signals.

  • In all fighting, the direct method may be used for joining battle, but indirect methods will be needed in order to secure victory. In battle, there are not more than two methods of attack - the direct and the indirect; yet these two in combination give rise to an endless series of maneuvers. The direct and the indirect lead on to each other in turn. It is like moving in a circle - you never come to an end. Who can exhaust the possibilities of their combination?

  • Whoever is first in the field and awaits the coming of the enemy, will be fresh for the fight; whoever is second in the field and has to hasten to battle will arrive exhausted.

  • The clever combatant imposes his will on the enemy, but does not allow the enemy's will to be imposed on him.

  • An army may march great distances without distress, if it marches through country where the enemy is not. You can be sure of succeeding in your attacks if you only attack places which are undefended. You can ensure the safety of your defense if you only hold positions that cannot be attacked.

  • Hence that general is skillful in attack whose opponent does not know what to defend; and he is skillful in defense whose opponent does not know what to attack.

  • If we wish to fight, the enemy can be forced to an engagement even though he be sheltered behind a high rampart and a deep ditch. All we need do is attack some other place that he will be obliged to relieve. If we do not wish to fight, we can prevent the enemy from engaging us even though the lines of our encampment be merely traced out on the ground. All we need do is to throw something odd and unaccountable in his way.

  • Should the enemy strengthen his van, he will weaken his rear; should he strengthen his rear, he will weaken his van; should he strengthen his left, he will weaken his right; should he strengthen his right, he will weaken his left. If he sends reinforcements everywhere, he will everywhere be weak.

  • In making tactical dispositions, the highest pitch you can attain is to conceal them.

  • Military tactics are like unto water; for water in its natural course runs away from high places and hastens downwards... Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions. He who can modify his tactics in relation to his opponent and thereby succeed in winning, may be called a heaven-born captain.

  • So in war, the way is to avoid what is strong and to strike at what is weak.

  • The difficulty of tactical maneuvering consists in turning the devious into the direct, and misfortune into gain.


  • Maneuvering with an army is advantageous; with an undisciplined multitude, most dangerous.

  • We cannot enter into alliances until we are acquainted with the designs of our neighbors.

  • Do not interfere with an army that is returning home. When you surround an army, leave an outlet free. Do not press a desperate foe too hard.

  • The art of war teaches us to rely not on the likelihood of the enemy's not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.

  • When the common soldiers are too strong and their officers too weak, the result is INSUBORDINATION. When the officers are too strong and the common soldiers too weak, the result is COLLAPSE. When the higher officers are angry and insubordinate, and on meeting the enemy give battle on their own account from a feeling of resentment, before the commander-in-chief can tell whether or no he is in a position to fight, the result is RUIN.

  • The general who advances without coveting fame and retreats without fearing disgrace, whose only thought is to protect his country and do good service for his sovereign, is the jewel of the kingdom.

  • Regard your soldiers as your children, and they will follow you into the deepest valleys; look upon them as your own beloved sons, and they will stand by you even unto death. If, however, you are indulgent, but unable to make your authority felt; kind-hearted, but unable to enforce your commands; and incapable, moreover, of quelling disorder: then your soldiers must be likened to spoilt children; they are useless for any practical purpose.

  • If we know that our own men are in a condition to attack, but are unaware that the enemy is not open to attack, we have gone only halfway towards victory. If we know that the enemy is open to attack, but are unaware that our own men are not in a condition to attack, we have gone only halfway towards victory. If we know that the enemy is open to attack, and also know that our men are in a condition to attack, but are unaware that the nature of the ground makes fighting impracticable, we have still gone only halfway towards victory.

  • If you know the enemy and know yourself, your victory will not stand in doubt; if you know Heaven and know Earth, you may make your victory complete.

  • On dispersive ground, therefore, fight not. On facile ground, halt not. On contentious ground, attack not. On open ground, do not try to block the enemy's way. On the ground of intersecting highways, join hands with your allies. On serious ground, gather in plunder. In difficult ground, keep steadily on the march. On hemmed-in ground, resort to stratagem. On desperate ground, fight.

  • If asked how to cope with a great host of the enemy in orderly array and on the point of marching to the attack, I should say: "Begin by seizing something which your opponent holds dear; then he will be amenable to your will." Rapidity is the essence of war: take advantage of the enemy's unreadiness, make your way by unexpected routes, and attack unguarded spots.

  • Throw your soldiers into positions whence there is no escape, and they will prefer death to flight. If they will face death, there is nothing they may not achieve.

  • If our soldiers are not overburdened with money, it is not because they have a distaste for riches; if their lives are not unduly long, it is not because they are disinclined to longevity.

  • Bestow rewards without regard to rule, issue orders without regard to previous arrangements; and you will be able to handle a whole army as though you had to do with but a single man.

  • Unhappy is the fate of one who tries to win his battles and succeed in his attacks without cultivating the spirit of enterprise; for the result is waste of time and general stagnation. Hence the saying: The enlightened ruler lays his plans well ahead; the good general cultivates his resources.

  • Move not unless you see an advantage; use not your troops unless there is something to be gained; fight not unless the position is critical. If it is to your advantage, make a forward move; if not, stay where you are. Anger may in time change to gladness; vexation may be succeeded by content.

  • No leader should put troops into the field merely to gratify his own spleen; no leader should fight a battle simply out of pique. But a kingdom that has once been destroyed can never come again into being; nor can the dead ever be brought back to life. Hence the enlightened leader is heedful, and the good leader full of caution.

  • Spies cannot be usefully employed without a certain intuitive sagacity; (2) They cannot be properly managed without benevolence and straight forwardness; (3) Without subtle ingenuity of mind, one cannot make certain of the truth of their reports; (4) Be subtle! be subtle! and use your spies for every kind of warfare; (5) If a secret piece of news is divulged by a spy before the time is ripe, he must be put to death together with the man to whom the secret was told.

  • The enemy's spies who have come to spy on us must be sought out, tempted with bribes, led away and comfortably housed. Thus they will become double agents and available for our service. It is through the information brought by the double agent that we are able to acquire and employ local and inward spies. It is owing to his information, again, that we can cause the doomed spy to carry false tidings to the enemy.

  • "To capture the enemy's entire army is better than to destroy it; to take intact a regiment, a company, or a squad is better than to destroy them. For to win one hundred victories in one hundred battles is not the supreme of excellence. To subdue the enemy without fighting is the supreme excellence."


Sunday, August 21, 2011

Exxon vs. Emerald Oil & Gas Company

Texas Monthly Examines How Big Oil Operates 
 A Landowners Must Read Story:
Below The Surface 
the story about Exxon vs Emerald Oil & Gas 

"The O’Connors and Exxon appear to be opposite sides of the Texas coin, with the former representing the rugged individualists who built this state and the latter representing the new Texas, a place driven by corporate wealth, political and legal power, and job creation."



IN THE SUPREME COURT OF TEXAS

════════════
No. 05-1076
════════════

Exxon Corporation and Exxon Texas, Inc., Petitioners,

v.

Emerald Oil & Gas Company, L.C. and Laurie T. Miesch, et al., Respondents

════════════════════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Thirteenth District of Texas
════════════════════════════════════════════════════


Argued February 13, 2007
            Justice Wainwright delivered the opinion of the Court.
            Justice O’Neill did not participate in the decision.
            In this oil and gas dispute, royalty owners and an oil and gas lessee sued a previous lessee for alleged wrongful conduct in the development and subsequent abandonment of two oil and gas tracts near Refugio, Texas. The plaintiffs allege statutory and common law waste, negligence per se, negligent misrepresentation, tortious interference, breach of lease, and fraud. The trial court directed a verdict in favor of the previous lessee on some claims, and the remaining claims went to verdict. The jury found in favor of the royalty owners and awarded $18.6 million in damages. The court of appeals reversed the directed verdict and affirmed the jury verdict. 180 S.W.3d 299. We reverse and remand.[1] Today, we also issue our opinion in Exxon Corp. v. Emerald Oil & Gas Co., the companion to this case. ___ S.W.3d ___ (Tex. 2009).
I. FACTUAL AND PROCEDURAL BACKGROUND
            The royalty owners[2] own several thousand acres of land in Refugio, Texas (O’Connor Lease). As early as the 1950s, Humble Oil and Refining Company, a predecessor of Exxon Corporation and Exxon Texas, Inc. (collectively Exxon), began acquiring mineral leases from the royalty owners. Exxon derived its interest from four separate mineral leases. The leases included an atypical fifty-percent royalty obligation and stringent disclosure, development, and surrender clauses.[3] During the term of the agreement, Exxon drilled 121 wells and produced at least 15 million barrels of oil and more than 65 billion cubic feet of gas, resulting in the payment of more than $43 million in royalties.
            In the early 1970s, Exxon attempted to renegotiate a lower royalty because profitability of the operations was declining. As early as 1987, the royalty owners requested that Exxon provide them information and documentation to support Exxon’s position that the field was depleted and no longer profitable, as the royalty owners claimed was required by the Lease to discontinue operations. By 1990, the royalty owners knew Exxon intended to plug six active wells and demanded that Exxon abandon its plans to plug these wells. On August 30, 1990, they sent a letter advising Exxon “that in the event [Exxon] plug[s] and abandon[s] any wells which are producing or capable of producing minerals in paying quantities to [the royalty owners], Exxon will be sued under the terms of the lease and the common law, both for present breach of contract and anticipatory damages.”
            On September 12, 1990, the royalty owners demanded by letter that Exxon deliver “any and all information, data and documents pertaining or relating to the subject wells, including drilling, production, completion and re-completion data, well bore production or completion schematics or diagrams and flow line maps and surface facility diagrams or schematics.” In the same letter, the royalty owners explained that “plugging and abandonment of the [six] referenced wells would commit waste and would be contrary to public policy and laws” and that the letter “shall also be considered as [a] formal demand not to plug the above referenced six wells.” The royalty owners further informed Exxon that they had “located a group of oil and gas companies willing to accept the plugging obligation” and assignment of the O’Connor Lease.
            Initially, Exxon refused to provide any information, claiming that the information was proprietary. Later, Exxon claimed the information was too difficult to locate and retrieve. Then, Exxon agreed to provide the royalty owners a “reading room” containing the requested information subject to a confidentiality agreement. The reading room included a large quantity of information, but it did not contain any interpretive data or the complete well logs. Exxon ultimately concluded that it could no longer profitably afford the O’Connor Lease unless the royalty owners agreed to reduce the royalty obligation. When negotiations to lower the royalty obligation failed, starting in 1989, Exxon began plugging and abandoning the wells. As required by law, after Exxon plugged each of the wells, it filed a plugging report with the Texas Railroad Commission. 7 Tex. Reg. 3991 (1982) (16 Tex. Admin. Code § 3.14(b)(1)), amended by 23 Tex. Reg. 9303 (1998) (current version at 16 Tex. Admin. Code § 3.14(b)(1)).[4] By letter dated August 16, 1991, Exxon notified the royalty owners that it had completed its plugging operations.
            In 1993, after Exxon’s lease terminated, the royalty owners entered into a lease agreement with Pace West Production, Ltd. (Pace), later known as Emerald Oil & Gas Co., L.P. (Emerald)[5], for one-third of the acreage in the O’Connor Lease. In deciding whether to lease the land, Emerald reviewed Exxon’s public filings related to the field, including the oil well plugging reports (W-3 forms) that Exxon filed with the Railroad Commission. The filings indicated that Exxon properly plugged the wells. However, Emerald encountered problems upon trying to reenter the plugged wells, including wellbores plugged with cut casing[6] and other “junk,”[7] wellbores containing environmental contaminants, and plugs in locations other than those listed on the reports. Emerald sent the royalty owners a written status report on June 8, 1994, explaining that it “encountered junk in hole” and that Exxon had cut the casing in some wells. On January 24, 1995, Emerald met with the royalty owners and explained more about the extent of the damage to the wells due to Exxon’s plugging techniques.
            In January 1995, Emerald obtained Exxon’s internal well records on the O’Connor Lease from Quintana, Exxon’s partner on the adjoining tract, also leased by Exxon. Exxon’s internal records differed substantially from the Railroad Commission filings regarding its plugging of the wells in the O’Connor Lease. Concluding that Exxon intentionally sabotaged the field, Emerald sued Exxon in July 1996, claiming (1) breach of a duty to plug the wells properly, (2) breach of a duty to avoid committing waste, (3) negligence per se in violating several sections of the Natural Resources Code and Commission Regulations, (4) tortious interference with economic opportunity, (5) negligent misrepresentation, and (6) fraud. In August and September 1996, the royalty owners intervened and alleged similar claims. In October 1999, the royalty owners amended their petitions, adding claims for breach of contract for Exxon’s failure to comply with development clauses in the lease.
            Prior to trial, the trial court granted Exxon’s motion for summary judgment and severed Emerald’s claims for breach of a duty to plug the wells properly, breach of a duty to avoid committing waste, and negligence per se, reasoning that Exxon owed no duty to Emerald as a subsequent lessee. Emerald appealed the trial court’s summary judgment ruling and severance order. The court of appeals reversed and remanded the claims to the trial court. Emerald Oil & Gas, L.C. v. Exxon Corp., 228 S.W.3d 166 (Tex. App.—Corpus Christi 2005), rev’d ____ S.W.3d ____ (Tex. 2009). Exxon appealed that judgment to this Court in cause number 05-0729.
            At trial, Exxon obtained a directed verdict on Emerald’s remaining claims and all of the royalty owners’ claims except common law and statutory waste and breach of lease. The jury found in favor of the royalty owners on the causes of action for waste and breach of lease, awarding $5 million in actual damages for waste, $10 million in punitive damages for waste, and $3.6 million in damages for breach of lease. The trial court rendered judgment in accordance with the verdict. All parties appealed. The court of appeals affirmed the judgment in favor of the royalty owners, reversed the directed verdict against Emerald, and remanded Emerald’s claims for a new trial. 180 S.W.3d 299. We granted Exxon’s petition for review. 
II. LAW AND ANALYSIS

A. Statute of Limitations: Statutory and Common Law Waste, Negligence Per Se, Negligent Misrepresentation, and Tortious Interference
            The parties agree that a two-year statute of limitations applies to their claims for statutory and common law waste, negligence per se, negligent misrepresentation, and tortious interference.[8] Tex. Civ. Prac. & Rem. Code § 16.003(a). However, Emerald and the royalty owners argue that Exxon’s conduct tolled the statute of limitations or delayed accrual of their claims. At trial, the jury found that the royalty owners discovered, or should have discovered in the exercise of reasonable diligence, the waste committed by Exxon on January 24, 1995, the date that Emerald’s representatives met with the royalty owners and informed them, in the words of the court of appeals, “about the full extent of damage to the wells and the numerous discrepancies” in Exxon’s plugging reports. 180 S.W.3d at 316. The court of appeals determined that the statute of limitations tolled until that date and affirmed the judgment on that issue. Id. at 316–17. Exxon argues that the court of appeals improperly tolled the two-year statute of limitations until Emerald and the royalty owners discovered the full extent of the damage, instead of the date Exxon completed plugging the wells.[9] Emerald and the royalty owners do not dispute that, unless accrual of the cause of action is deferred or the statute of limitations tolled, the two-year statute of limitations bars all of their claims except fraud, which has a four-year statute of limitations. See Tex. Civ. Prac. & Rem. Code § 16.004.
            Although Emerald and the royalty owners argue that the statute of limitations on their claims has tolled under the doctrine of fraudulent concealment, or that the accrual of their claims have been deferred because of the discovery rule, we do not reach these issues because Emerald and the royalty owners had actual knowledge of violations of the lease agreement and their injuries by June 8, 1994 at the latest. Specifically, the royalty owners advised Exxon in writing in September 1990 that plugging the wells would commit waste in violation of the law. In June 1994, Emerald advised the royalty owners that it discovered that Exxon placed cut casing and junk in one or more wells. Therefore, by September 1990, the royalty owners had actual knowledge of the facts underlying their breach of lease and waste claims, and by June 1994, both Emerald and the royalty owners had actual knowledge of the facts underlying their negligence and tortious interference claims.
            The royalty owners argue that they did not appreciate the significance of the statements in the letter they wrote to Exxon in 1990 and the letter Emerald sent to them in 1994. However, the 1990 letter threatened Exxon with a lawsuit for waste and violation of the law if it plugged the wells, and in the 1994 letter, Emerald told the royalty owners that Exxon cut casing and dumped junk in the wells that were plugged. Both the court of appeals and the jury concluded that Emerald and the royalty owners did not have actual knowledge of their claims until January 1995. The legal significance of the undisputed facts cannot be ignored. See City of Keller v. Wilson, 168 S.W.3d 802, 814–17 (Tex. 2005) (explaining that courts conducting a no-evidence review cannot ignore evidence that has one logical conclusion). The letters unequivocally and conclusively establish that the royalty owners and Emerald knew or suspected there was damage to their interests in the O’Connor Lease in 1990 and 1994.
            Causes of action accrue when claimants are on notice of their injury and have the opportunity to seek a judicial remedy. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 221 (Tex. 2003). The claims have a two-year statute of limitations. Irrespective of whether fraudulent concealment or the discovery rule tolls any portion of an applicable limitations period, actual knowledge of the injury triggers the accrual of the cause of action. The limitations period on the royalty owners’ breach of lease and waste claims began to run September 1990 and ended September 1992, and the limitations period on Emerald’s and the royalty owners’ negligence and tortious interference claims began to run June 1994 and ended June 1996, when the royalty owners had actual knowledge of their claims. Thus, Emerald’s claims brought in July 1996 and the royalty owners’ claims brought in September 1996 are time-barred. See Tex. Civ. Prac. & Rem. Code § 16.003(a).
B. Breach of Lease
            The leases’ development clauses require Exxon to “prosecute diligently a continuous drilling and development program until [the tracts are] fully developed for oil and gas.” The royalty owners claim that Exxon failed to develop two productive zones in violation of the development clauses. The court of appeals upheld the jury’s verdict, holding that the testimony of the royalty owners’ expert, George Hite, was some evidence that the leases were capable of producing in paying quantities until 1999 and that Exxon did not drill and complete wells in two productive zones, H12 and FS75.[10] 180 S.W.3d at 334–35. Exxon contends no evidence supports the jury’s finding that Exxon failed to comply with the development clauses in the oil and gas agreement.[11]
            Before we address Exxon’s legal sufficiency argument, we must first determine the scope of Exxon’s development obligations under the leases. “An oil and gas lease is a contract, and its terms are interpreted as such.” Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005); accord Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 662 (Tex. 2005) (interpreting an oil and gas lease using contract principles). “In construing an unambiguous oil and gas lease, . . . we seek to enforce the intention of the parties as it is expressed in the lease.” Tittizer, 171 S.W.3d at 860. The development clauses state that the tracts are deemed “fully developed” when “at least one (1) well has been drilled and completed in each horizon or stratum capable of producing [oil or gas] in paying quantities” for a specified number of acres. This is a common definition of “fully developed” in an oil and gas lease. 5 Howard R. Williams & Charles J. Meyers, Oil and Gas Law § 671.4, at 136.1 (3d ed. 2008). The parties’ primary dispute is the meaning of “drill” and “complete” in the development clause of the lease agreement.
            The leases do not define “drill” or “complete.” “It is a well recognized canon of construction that technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless there is evidence that the words were used in a different sense.” Barrett v. Ferrell, 550 S.W.2d 138, 142 (Tex. Civ. App.—Tyler 1977, writ ref’d n.r.e.). In oil and gas parlance, “drill” refers to the “[a]ct of boring a hole through which oil and/or gas may be produced if encountered in commercial quantities.” 8 Howard R. Williams & Charles J. Meyers, Oil and Gas Law: Manual of Oil and Gas Terms at 281–82 (3d ed. 2008). A “completed well” refers to “a well capable of producing oil or gas.” Id. at 171 (emphasis added). The “completion of a well” can also refer to “those processes necessary before production occurs [such as] perforating the casing and washing out the drilling mud.” Id. at 174 (emphasis added). Certainly, the parties can define the operator’s duty under the contract differently. For example,

[c]ompensation for drilling an oil or gas well may be made contingent upon the discovery of oil or gas in paying quantities, but a contract will not be so construed in the absence of a clear expression or implication of such intent by the contract . . . . The courts in construing contracts for the drilling of wells are not disposed to imply warranties as to production.

Barrett, 550 S.W.2d at 142 (citing W.L. Summers, The Law of Oil and Gas § 687 (perm. ed. 1938)). These definitions show that for a well to be considered “drilled and completed” as contemplated by the development clauses, a hole must be dug in the ground, and if oil or gas is encountered, the casing must be perforated or otherwise prepared for production. The definition of a completed well in the treatises is also the one recognized by this Court. Barrett, 550 S.W.2d at 142 (citing Cannon v. Wingard, 355 S.W.2d 776, 780 (Tex. Civ. App.—Dallas 1962, writ ref’d n.r.e.)). A “well need not be a producing well to be completed;” it only needs to be capable of producing oil or gas. Id.
            The royalty owners concede that Exxon complied with the spacing requirements and drilled the requisite number of wells per acre. The royalty owners, however, confuse Exxon’s contractual obligation to fully develop the tract (“drill” and “complete” at least one well), per the terms of the lease, with an obligation to exploit the tracts fully. Under the royalty owners’ interpretation, Exxon must produce and extract all the reserves in each zone capable of production in paying quantities. This obligation appears nowhere in the language of the development clauses. Exxon’s development obligations only require it to drill a requisite number of wells per acre, and if oil or gas is encountered, Exxon must prepare the well for production in paying quantities. In the oil patch, mutual incentive of owners and operators to make a profit drives the operator, having sunk costs, to produce in paying quantities.
            Having ascertained the scope of Exxon’s development obligations, we now turn to the sufficiency of the evidence offered to support the breach of lease claim. Because Exxon is attacking the legal sufficiency of the evidence supporting an adverse finding on an issue for which it did not have the burden of proof, Exxon must show that no evidence supports the jury’s adverse finding. See Croucher v. Croucher, 660 S.W.2d 55, 58 (Tex. 1983). Evidence is legally sufficient if it “would enable reasonable and fair-minded people to reach the verdict under review.” City of Keller, 168 S.W.3d at 827. We “credit favorable evidence if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not.” Id. at 827.
            Exxon argues that Hite’s testimony that Exxon failed to develop the leases is conclusory and, therefore, insufficient to support the jury’s verdict. “Opinion testimony that is conclusory or speculative is not relevant evidence, because it does not tend to make the existence of a material fact ‘more probable or less probable.’” Coastal Trans. Co. v. Crown Cent. Petroleum Corp., 136 S.W.3d 227, 232–33 (Tex. 2004) (quoting Tex. R. Evid. 401). Such conclusory evidence cannot support a judgment. Id. at 232.
            Hite testified that “fully developed” means there are a “sufficient number of wells in it to get the reserves.” And when asked whether Exxon completed “in the FS75 and the H12, in every well, that Exxon had good probability of producing oil and gas in those two zones,” he answered “[n]o, they didn’t.” However, when asked whether “drilling the H12 and completing it in two wells complete[d] that zone in the wells on this tract that would penetrate that zone in paying quantities,” he answered “[i]f your question is, did the two wells fully develop the lease, the answer is no.” Asked whether the wells Emerald completed in FS75 were “completed in a fully-developed manner,” he answered “[n]o, it was not.” The evidence does not support his assertion. Hite’s charts of the production from the wells in the O’Connor Lease were admitted at trial. The charts show that Exxon drilled at least one well in each zone and produced 3,651,850 cubic feet of gas and 78,746 barrels of oil in zone FS75 and 1,728,728 cubic feet of gas and 3,933 barrels of oil in zone H12. The royalty owners concede facts establishing that Exxon drilled at least one well in FS75 and at least one well in H12 and both wells produced in paying quantities. The attempt to characterize these facts differently does not change the evidence.
            Hite’s subsequent testimony indicates that he too conflated “complete” with “produce” or “exploit.” He argues that Exxon violated the development clauses because Exxon did not produce more extensively, or exhaust the production, from the wells in zones H12 and FS75. His testimony sidesteps the precedent question of whether Exxon drilled and completed the requisite number of wells per acre and, instead, focuses on whether zones FS75 and H12 would have supported further production in paying quantities. He testified that zones H12 and FS75 had remaining reserve potential and that Exxon had information indicating they “could be developed further.” Evidence that further development potential existed when Exxon abandoned the leasehold in 1991 is not evidence that Exxon failed to comply with the parties’ agreement embodied in the development clause. And evidence that Exxon did not fully exploit the reserves in FS75 and H12 is not evidence that Exxon did not “drill and complete” the requisite number of wells for zones FS75 and H12. The evidence conclusively proves that, as required by the contract, Exxon completed at least one well capable of producing in paying quantities in each zone. See City of Keller, 168 S.W.3d at 814–15. Therefore, we reverse the court of appeals’ judgment and render judgment in favor of Exxon on the breach of lease claim.[12]
C. Fraud
            Unlike most of Emerald and the royalty owners’ other claims, which have a two-year statute of limitations, the statute of limitations for fraud is four years. Tex. Civ. Prac. & Rem. Code § 16.004(a)(4). The statute of limitations for fraud begins to run from the time the party knew of the misrepresentation. Little v. Smith, 943 S.W.2d 414, 420 (Tex. 1997). The briefing on this issue does not identify when Emerald and the royalty owners learned of the allegedly false plugging reports. Emerald does acknowledge that “the first place subsequent operators turn is those very filings at the Railroad Commission when deciding whether redevelopment can be economically undertaken.” It would seem that the royalty owners learned of the asserted misrepresentations in the June 1994 letter from Emerald. The letter states that Emerald encountered “junk” in the wells on the O’Connor Lease as early as August 1993. Thus, Emerald may have learned about the misrepresentations on or around that date. Based on either of these dates, the fraud claims filed by Emerald and the royalty owners were timely, and therefore, we reach the merits of the fraud claim.[13]
            The court of appeals reversed the trial court’s directed verdict on the fraud claim, holding that the jury should have been allowed to consider whether the evidence was sufficient to establish fraud. It asserted that the evidence did not conclusively disprove the intent-to-induce reliance element of the fraud claim. In reviewing a trial court’s directed verdict, we examine the evidence in the light most favorable to the person suffering an adverse judgment and decide whether there is any evidence of probative value to raise an issue of material fact on the question presented. Henderson v. Travelers Ins. Co., 544 S.W.2d 649, 650 (Tex. 1976). We do not hold that public filings, such as Railroad Commission reports, alone satisfy the intent-to-induce reliance element of fraud. We conclude there was some evidence presented at trial tending to show that Exxon knew, at the time it filed the plugging reports, of an especial likelihood that the royalty owners and the identified future operators would rely on the inaccurate plugging reports. We, therefore, agree with the court of appeals on this issue.
            A plaintiff seeking to prevail on a fraud claim must prove that (1) the defendant made a material misrepresentation; (2) the defendant knew the representation was false or made the representation recklessly without any knowledge of its truth; (3) the defendant made the representation with the intent that the other party would act on that representation or intended to induce the party’s reliance on the representation; and (4) the plaintiff suffered an injury by actively and justifiably relying on that representation. See De Santis v. Wackenhut Corp., 793 S.W.2d 670, 688 (Tex. 1990); Trenholm v. Ratcliff, 646 S.W.2d 927, 930 (Tex. 1983).
            Emerald and the royalty owners[14] claim that Exxon committed fraud by misrepresenting material information in its plugging reports to the Railroad Commission with the intent that known lessees and lessors of such mineral interest would rely on the information in the future. The royalty owners and Emerald claim, as a result of their reliance, that they are entitled to “the lost wells and minerals, the additional cost of re-completing the improperly plugged wells and the increased risk in loss of producing zones and wells.” The court of appeals held that evidence that Exxon knew that unidentified, subsequent lessees and operators might rely on Railroad Commission filings to make business decisions was sufficient to satisfy the intent-to-induce reliance element of fraud. 180 S.W.3d at 337. Exxon argues that the court of appeals’ decision is erroneous for two reasons. First, Exxon argues there is no evidence that future operators would rely on the plugging reports because the reports’ only purpose is to allow the state to protect against pollution. Second, Exxon argues that Emerald’s approach reduces the intent-to-induce reliance element of fraud to mere foreseeability, counter to the Court’s analysis in Ernst & Young. 51 S.W.3d 573, 580 (Tex. 2001).
            “Proper plugging is the responsibility of the operator of the well.” 7 Tex. Reg. 3991 (1982) (16 Tex. Admin. Code § 3.14(c)(1)), amended by 23 Tex. Reg. 9304 (1998) (current version at 16 Tex. Admin. Code § 3.14(c)(1)). The Railroad Commission mandates:

Non-drillable material that would hamper or prevent re-entry of a well shall not be placed in any wellbore during plugging operations . . . . Pipe and unretrievable junk shall not be cemented in the hole during plugging operations without prior approval by the district director.

7 Tex. Reg. 3991 (1982) (16 Tex. Admin. Code § 3.14(c)(9)), amended by 23 Tex. Reg. 9305 (1998) (current version at 16 Tex. Admin. Code § 3.14(d)(10)). Exxon argues that this section and similar plugging requirements are not intended to benefit future operators, but only to protect the environment. Thus, Exxon argues, no evidence supports Emerald’s argument that there was an especial likelihood that Exxon knew future operators would rely on the reports because that is not the reports’ purpose.
            Although the Railroad Commission explained that it revised section 3.14 “to protect fresh water in the state from pollution,” the plugging reports are not limited to this purpose. The Commission states that one of the objectives of the plugging regulations is to prevent plugging of wells that hinder or prevent reentering wells, which could be desired by the same or subsequent owners or operators. 7 Tex. Reg. at 3989. To police this regulation, the Commission requires that the plugging reports, or W-3s, be verified under oath, be filed within thirty days after the plugging is completed, and disclose the methods used to plug a well. Id. at 3991. Thus, the purpose of requiring operators to file plugging reports with the Commission is to ensure that operators follow a plugging procedure that not only prevents pollution, but also allows reentry into the wells for commercial purposes.
            However, the mere fact that royalty owners and subsequent lessees might or should rely on statements in Exxon’s plugging reports alone is not sufficient to establish an intent to induce reliance, as the court of appeals and Emerald argue. Ernst & Young, 51 S.W.3d at 580. In Ernst & Young, we considered the proof necessary to establish the intent-to-induce reliance element of a fraud claim. Although we declined to decide whether to adopt the reason-to-expect standard outlined in section 531 of the Restatement (Second) of Torts, we concluded that this standard is consistent with Texas fraud jurisprudence. Id. Section 531 provides:

One who makes a fraudulent misrepresentation is subject to liability to the persons or class of persons whom he intends or has reason to expect to act or to refrain from action in reliance upon the misrepresentation for pecuniary loss suffered by them through their justifiable reliance in the type of transaction in which he intends or has reason to expect their conduct to be influenced.

Restatement (Second) of Torts § 531 (1977). Like the defendants in Ernst & Young, Exxon argues that this approach reduces the intent-to-induce element to a foreseeability standard. We rejected that argument in Ernst & Young, holding that section 531’s “reason-to-expect standard requires more than mere foreseeability; the claimant’s reliance must be ‘especially likely’ and justifiable, and the transaction sued upon must be the type the defendant contemplated.” Ernst & Young, 51 S.W.3d at 580. Evidence that reliance on false public information as part of a general industry practice is insufficient, as a matter of law, to prove an intent to induce reliance. Id. at 581–82. Even an obvious risk that a misrepresentation might be repeated to a third party is not sufficient to satisfy the reason-to-expect standard. A plaintiff must show that “[t]he maker of the misrepresentation [has] information that would lead a reasonable man to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.” Restatement (Second) of Torts § 531 cmt. d (1977). The standard is not met if a plaintiff merely foresees that some party may rely on statements made in a public filing. In order to prove intent-to-induce reliance under this standard, the party must show an especial likelihood that the party who made the misstatement knew the claimant would rely on the information in the type of transaction the defendant contemplated. See Ernst & Young, 51 S.W.3d at 580.
            Therefore, if the evidence shows that Exxon made material misrepresentations in its plugging reports to the Railroad Commission, and Exxon knew that lessors and operators in the future may rely on the filings, such evidence would fail as a matter of law under the Ernst & Young standard. Id. at 581–82. Such a holding would open the cause of action to any person who subsequently relied on any public filings—including stocks and bonds, security interests, real property deeds, and tax filings—with few limits in sight. The intent-to-induce reliance element of fraud is a focused inquiry, more akin to a rifle shot than a shotgun blast. Intent-to-induce reliance is not satisfied by evidence that a misrepresentation may be read in the future by some unknown member of the public or of a specific industry.
            Here, however, there is some evidence that Exxon knew of an especial likelihood that Emerald specifically would rely on the plugging reports in a transaction being considered at the time it filed the plugging reports. In 1989, Exxon concluded that it could no longer profitably operate the leases unless Exxon’s royalty could be renegotiated. The negotiations failed, and Exxon plugged the wells in the O’Connor Lease between 1989 until 1991. In their letter of September 12, 1990, the royalty owners stated, “[W]e have located a group of oil and gas companies that are willing to accept the plugging obligations and an Assignment of the above referenced [six] wells [and certain acreage around each well].” They also offered their consent to assign all of Exxon’s right, title, and interest in the leases to several companies and indicated their interest in future oil and gas operations in the Lease.
            In 1989, Emerald expressed that it was “most anxious to proceed” with production in the O’Connor Lease and offered to purchase Exxon’s interest. Emerald renewed its offer in January 1990. By letter of July 23, 1990, Exxon advised each of the royalty owners that Pace had expressed an interest in the Lease. On May 25, 1993, Emerald acquired the interest to develop the Lease.
            Exxon knew the royalty owners had a continuing interest in further developing the O’Connor Lease, received offers from the putative subsequent lessee to purchase Exxon’s interest in the Lease, and knew the transaction proposed by Miesch and Emerald was the continued production of oil and gas in the Lease. Thus, legally sufficient evidence in the record supports the claim that Exxon had information that would lead a reasonable person to conclude there was an especial likelihood these plaintiffs would rely on Exxon’s inaccurate filings with the Railroad Commission at the time it filed them. Accordingly, the trial court’s grant of directed verdict on the fraud claim on this basis was in error.[15]
III. CONCLUSION
            We hold the statutory and common law waste, negligence per se, negligent misrepresentation, and tortious interference claims are time-barred and reverse and render judgment in Exxon’s favor with respect to those claims. We also hold no evidence supports the breach of lease claims and reverse and render judgment in Exxon’s favor with respect to those claims. Finally, we affirm the court of appeals’ judgment, for different reasons, reversing the trial court’s directed verdict with respect to the fraud claim, and remand that claim to the trial court for further proceedings.


________________________________________
                                                                                                                 Dale Wainwright
                                                             Justice

OPINION DELIVERED: March 27, 2009
                 


[1] We received amicus briefs from the Texas Oil & Gas Association, The Texas Alliance of Energy Producers, the Texas Land and Mineral Owners’ Association, Texas and Southwestern Cattle Raisers Association, and Jerry Patterson, Commissioner of the Texas General Land Office and Chairman of the School Land Board.
The royalty owners (collectively referred to as Miesch) are Molly Miesch Allen, Brien O’Connor Dunn, Bridey Kathleen Dunn Greeson (individually and as trustee of Dunn-O’Connor Family Trust), Jack Miesch, Laurie T. Miesch, Michael Miesch, Morgan Frances Dunn O’Connor, Nancy O’Connor, T. Michael O’Connor, Janie Miesch Robertson, and Kelly Patricia Dunn Schaar.
[3] The four leases are not identical; however, the differences are not material to the analysis in this case.
Title 16 section 3.14 of the Texas Administrative Code requires well operators to file plugging reports, or W-3 forms, with the Railroad Commission within thirty days after each well is plugged. 16 Tex. Admin. Code § 3.14. Section 3.14 mandates that an operator disclose the specific methods used to plug the wells and sign an oath verifying that the statements in the report are true. Id.
[5] The evidence indicates that Emerald was formerly known as Pace West Production, Ltd. A May 25, 1993 “Agreement for Waivers” between Emerald and the royalty owners states that Emerald was “formerly known as Pace West Production, L.C., and also formerly known as Pace West Production, Ltd.” An undated “Memorandum of Amended Oil and Gas Lease and Financing Statement” also states that Emerald was formerly known as Pace West. Additionally, Glenn Warren Lynch, a representative from Emerald, testified that Emerald “was formerly known as Pace West.” T. Michael O’Connor, one of the royalty owners, explained that Emerald was operating under another name, Pace West, when it made an initial offer to reopen some of the wells in the O’Connor Lease.
[6] Exxon does not dispute that it plugged the wells using non-standard plugging procedures. It admits to cutting the well casing and leaving it in the wellbore. This material may delay completion of the well and increase reentry expenses. Tarrant County Water Control & Imp. Dist. No. One v. Fullwood, 963 S.W.2d 60, 67 (Tex. 1998).
[7] The term “junk” is a term of art used in the oil and gas industry to refer to “non-drillable material such as steel or iron, in [a] well bore.” Id.
[8] This discussion pertains only to the royalty owners’ claims for statutory and common law waste and negligence per se. Emerald’s similar claims were severed at the trial court and are the subject of the opinion issued in the companion case, Exxon v. Emerald Oil & Gas Co., L.C. ___ S.W.3d ___ (Tex. 2009).
[9] Emerald argues that Exxon failed to preserve its argument that the tortious interference claims are time-barred. In its motion for directed verdict at trial, Exxon stated that “all of the claims asserted by the Plaintiffs . . . are barred by the applicable statutes of limitations.” Exxon made the same argument before the court of appeals and raises the issue in this Court. Exxon preserved this issue for our review.
[10] The royalty owners and their expert (Hite) used “horizon,” “stratum,” and “zone” interchangeably.
[11] The jury also found that Exxon fraudulently concealed its breach and that the royalty owners did not know, and could not have known with due diligence, that Exxon fraudulently concealed its failure to fully develop until February 1999 when Exxon produced previously requested documents during discovery. For the reasons that follow, we need not reach the royalty owners’ fraudulent concealment claim.
[12] Because we conclude no evidence supports the royalty owners’ underlying breach of lease claim, we need not reach the issue of whether the claim is time-barred or whether the doctrine of fraudulent concealment tolls the statute of limitations. See Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 352 n.1 (Tex. 1990) (holding that the doctrine of fraudulent concealment estops a defendant who conceals the existence of a cause of action from asserting the statute of limitations as an affirmative defense).
[13] Nothing in this opinion precludes Exxon from claiming on remand that Emerald and the royalty owners learned of misrepresentations earlier.
[14] Because the royalty owners only conditionally challenged the directed verdict at the court of appeals, and the court of appeals upheld the judgment in their favor, the royalty owners do not address the fraud claim in detail before this Court.
[15] Emerald and the royalty owners claim that they are entitled to all of their damages, including lost wells and minerals, due to the alleged fraud. Because this issue was not presented to this Court, we need not address it in this opinion. However, we note that the “measure of damages in a fraud case is the actual amount of the plaintiff’s loss that directly and proximately results from the defendant’s fraudulent conduct.” Tilton v. Marshall, 925 S.W.2d 672, 680 (Tex. 1996).


Monday, July 4, 2011

Repost: The Eagle Ford Overpressure "Goldilocks" Oil Window: $30,000 IS TOO CHEAP

NOTE: The following analysis was originally published here on November 3, 2010. It was truly a prophetic analysis rooted in a deep understanding of the Eagle Ford shale. I urge everyone to take a fresh look at this old post I published 8 months ago. Nostradamas? Eagle Ford is even more valuable than I originally thought. Land prices are currently in flux and seeking what is fair value. We are no where near a top in where land values will ultimately go.

 
Through the process of observation and analysis, it has now become abundantly clear, and it's safe to say, that a "Goldilocks" zone runs through the Eagle Ford oil window. The Eagle Ford itself is a complicated play with a gradual transition from crude oil to NGL to dry gas, in shale of varying thickness. However, there exists a narrow overpressure oil window that is quite simply a marvelous golden zone, and it is coveted by operators due to it's extreme economics. Those owning the minerals to this strip of land are sitting on a untapped Elephant Field bonanza that is a veritable black gold mine.

Operators have been disclosing, actually downright bragging, about just how valuable that this “Goldilocks” acreage is while presenting at their numerous dog and pony shows at recent investor energy conferences across the country these past few months. These operators have provided their investors with virtually full operational transparency in their hopes of driving up their stock price. By way of these energy conference presentations, streamed over the internet, those of us with the curiosity to learn, have been able to drill into a gusher of technical data giving us the equivalent of a 3D seismic view of what they know, how they operate, and how they have cheated some landowners who signed leases early. By providing their investors this information we have learned there exists what they themselves describe as a "sweet spot" that runs through the play. This "sweet spot" contains the most valuable acreage imaginable. This “Goldilocks” zone is rich in high quality light sweet crude oil that is under pressure and it lays where the shale is at it thickest. Operators are hinting that there may be well in excess of 750,000 recoverable barrels of this high quality crude oil per well. Let's merely use their figure of 750,000 boe and multiply that by today's NYMEX price of $84.40 and you get a whopping $63,300,000 net pay from a “Goldilocks” well. When you are talking about acreage that will produce earnings near $800,000+ per acre you quickly come to the realization this particular acreage is extremely valuable. It's not just leasehold acreage getting much more expensive either, everything is far more expensive for operators today. By their own admission frac jobs have gone from $600,000 per well in the summer of 2009 to a blistering $3.5 million today. Lease bonuses and royalty will follow suit. You like apples? How do you like them apples?

With NYMEX crude oil on the rise, I am going to go out on a limb and predict that historic new highs in both lease bonuses and royalty percentage will be established prior to the Eagle Ford being fully developed. I am willing to go even farther out on a limb and predict the strong likelihood of lease bonuses of $100,000 per acre and royalty of at least 30% at some point in select areas of the sweet spot. Right now, the terms you negotiate for your oil and gas lease are far more important than the actual timing of doing a deal. Time is definitely on your side. We are merely in start up mode at the present time.

The process whereby you can fairly value what lease acreage is worth is rather straight forward. The value is directly related to how much and what kind of hydrocarbons are under your land. Both of these questions can be answered within relative broad parameters by simply plugging in operator provided EUR's and the API grade of crude oil. Goldilocks generally runs in a line from Karnes County, following the general direction of Cheapside and then to the Shiner area where the oil window veers somewhat to the north east. You simply have to get it in your head and think of you land as being a container of crude oil and you own this valuable commodity. You own it, it belongs to you and if somebody wants it from you they have to pay you for it. Good business people don't have to cheat, lie, and steal to make a profit. You own many birds in the hand and the tired cliché of a bird in the hand being worth two in the bush is nonsense. Don't become a landman victim, demand a fair price for the minerals "YOU OWN."

For what it is worth, I come to this discussion with a background in finance, having been a stockbroker for a national securities firm.  My resume includes successfully passing the Series 7 exam, the most comprehensive financial securities exam offered by the FINRA. My bold predictions about future huge lease bonuses and royalty are grounded in my financial background. I am as serious as a heart attack.

IS A HONEYCOMB FRAC DESIGN BEING EMPLOYED IN UPPPER & LOWER EFS FRAC'S? I don't know for certain, but the suggestion certainly is there, that at least one operator is using a frac design similar to a honeycomb to efficiently drill, frac and produce the thicker part of the "Goldilocks" zone.  This design might ultimately result by order of magnitudes in greater recovery of the light sweet crude from the reservoir. I believe chief geologist for EOG Loren Leiker calls this Matrix Flow. 11/5/10 Perhaps this is what EOG Resources CEO Mark Papa was alluding to when he said "This is the nature of the development of these horizontal assets for maximum reserve recovery, whereby we drill and complete a group of five to 15 wells together before bringing any of them to sales."
http://seekingalpha.com/article/219219-eog-resources-q2-2010-earnings-call-transcript

LANDOWNERS, BE LIKE OLIVER TWIST, DON'T BE AFRAID TO ASK FOR MORE!