SpaceX Continues To Fight For Drilling Mars Rocket Fuel In Texas

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Space Exploration Technologies Corp.'s (SpaceX) fight with Dallas Petroleum Group (DPG) over the latter's claim of surface drilling rights for two wells in Texas made headway last month as the two companies' representatives presented their cases before the Texas Railroad Commission. The dispute arose when SpaceX acquired the land with the La Pita Wells 2R and 3 last year and asked DPG to sign the RRC's Form P4 that would have officially transferred the authority for operating the wells to SpaceX's affiliate LoneStar Mineral Development, LLC. However, DPG refused to do so, as it claimed that the lands which SpaceX had bought were sold to it in 2017.

The Commission's hearing which took place at the end of January's third week involved both parties revealing key facts about the entire affair and arguing about whether DPG has the rights to charge SpaceX for using the surface land of the wells in question. DPG claims it does while SpaceX denies this fact, arguing that the conveyance document which transferred the right to DPG in 2017 did not mention the tract of land with the wells nor the entity which owned the land.

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DPG States It's Fighting Against "Sophisticated Corporate Entities" Seeking To Deprive It Of Surface Fee Collection

In his opening remarks, Bill Hayenga representing DPG claimed that his client is not disrupting SpaceX's ability to drill the wells. Instead, according to him, DPG is only seeking to establish its 'surface fee interests' or the right to collect fee for using the land from parties interested in mining the wells. Mr. Hayenga's opening remarks flatly asserted this claim, as he didn't mince any words and stated:

Macro level what's going on is Dallas Petroleum is a very small operator that is up against some very large, sophisticated corporate entities that are trying to dispossess Dallas of its surface fee interest.

What these entities are, the attorney failed to say but throughout the hearing, his position revolved around the claim that his firm is entitled to the surface rights for the La Pita wells simply because of the broadly expansive wording of the purchase and sales document.

Lone Star's representative Tim George denied this assertion and claimed that DPG does not have any surface rights to the land. His argument centers on the facts that the sales document to DPG from SEP IV did not explicitly mentioned Sanchez Oil & Gas who held the land rights, since DPG did not conduct any operations on the wells since it acquired the wellbore rights in 2017 the lease rights can be reverted back to the unleased mineral owner and remove any need for SpaceX to do any business with DPG and that since DPG is suing the three Sanchez companies to secure rights for the 24 acres of land of the wells, it implicitly accepts that it does not possess the said rights before the suit is potentially decided in its favor by the Cameron County Court.

SpaceX's Raptor engine during a test-fire. The Raptor will power the first and second stages of Starship and uses Methane for its fuel. SpaceX intends to drill methane from the La Pita Well No. 2R confirmed Lone Star's attorney during the hearing. (Image: SpaceX)

SpaceX Affiliate Maintains DPG Has No Surface Rights Over La Pita Wells For Drilling Methane For Starship Engines

The first part of the hearing was dedicated to Mr. George explaining the timeline of operations for the two wells, their lease history and production timelines. According to research done by LoneStar's hired firms, the wells stopped operation in 2014 and the chain of ownership does not link to the entity (SEP Holdings IV)  that transferred the land through conveyance to DPG.

It then picked up the pace when in order to invalidate SpaceX's claim of being granted a single-signature P-4 (effectively moving DPG out of the picture), Mr. Hayenga and DPG's president and owner Mr. Mathew Williams stated that the company might have conducted operations on the land before it applied for the P-4.

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To prove this, Mr. Williams established a timeline starting from July 2020 and ending in mid-December through aerial photographs showing that equipment and activity not representative of DPG was present at the wells during this time period. He then stated that even though DPG was not conducting these operations, it was responsible for any accidents that might have taken place since the P-4 document is in its name.

While the hearing was an overall cordial affair, things heated up when Mr. Hayenga directly asked Mr. Williams about who he believed was operating the equipment. At this point, the Lone Star attorney objected and stated that any such disclosure would represent an opinion unless backed by fact.

To counter this, Mr. Hayegna submitted to the Commission a third-party call recording to DPG stating that the property had been acquired by SpaceX and that they were being asked to remove equipment on it but since DPG's name was on the boards, a clarification was needed to avoid any impropriety.

The wells and the land from DPG's exhibit shared before the Texas Railroad Commission before the hearing.

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Mr. George countered this in his cross-examination by stating that the executive had no. personal knowledge of what was going on at the property and that his conclusions were drawn from aerial pictures of the area.

The hearing concluded by DPG agreeing to provide more details on whether it has been paying taxes for the land in question, with the company also admitting that the Cameron Appraisal District's systems list as Sanchez being responsible for the site's taxes.

Following this hearing, both parties are set to submit their closing arguments and responses to the closings over the course of this month in a process stretching until mid-March. Unless the matter is resolved, Lone Star will not be granted a transfer of authority for the wells by the Railroad Commission.

The fact of the matter remains that DPG paid $7 million for acquiring interests held by SEP IV while assuming that interests held by SEP I, II and III would also be transferred to it in exchange for taking up the plugging costs of the wells. The rights being transferred are the disputed surface rights which allow the company to charge fees for any party with mineral rights that chooses to drill in the area. As of the hearing, the SpaceX affiliate has managed to secure 80% of the total mineral rights for the La Pita wells.

The author has no position in any of the stocks mentioned. WCCF TECH INC has a disclosure and ethics policy.
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