Big Deal or Nah? LNG exporter Tellurian buying Haynesville acreage for $85.1M

My gut tells me this is a big deal for the region and the Haynesville play-what we were hoping and expecting to happen eventually. What are your thoughts? Will other exporters follow and do the same?

HOUSTON, TX--(Marketwired - September 06, 2017) - A wholly-owned subsidiary of Tellurian Inc. (Tellurian) (NASDAQ: TELL) has entered into an agreement with a private seller to acquire natural gas producing assets and undeveloped acreage in northern Louisiana for $85.1 million. The transaction is scheduled to close by the end of November 2017 subject to customary closing conditions.

The assets are located in Red River, DeSoto and Natchitoches Parishes, and include:

  • 9,200 net acres with up to 138 operated Haynesville and Bossier drilling locations
  • Approximately 1.3 trillion cubic feet (Tcf) of total natural gas resource potential 
  • 19 producing operated wells with net current production of four million cubic feet per day (MMcfd)
  • Associated natural gas gathering and processing facilities with substantial additional capacity

The assets are 100% held by production and 92% operated, allowing Tellurian to control the pace of development for its multi-year drilling inventory. 

President and CEO Meg Gentle said, "Acquisition of natural gas producing assets is integral to our growing business. We expect our full cycle cost of production and transport to markets will be approximately $2.25 per MMBtu, which represents a significant savings to natural gas we will purchase at Henry Hub and other regional liquidity points. Platts LNG Daily reported the price of LNG in the Gulf of Mexico was $5.67 per MMBtu yesterday, providing the price signal to construct additional liquefaction capacity."

Covering more than five million acres, the Haynesville shale is one of the most prolific resource plays in the United States with over 13 Tcf of historical production, more than 44 active drilling rigs, access to multiple pipelines and close proximity to Gulf Coast consumers and exporters.

About Tellurian Inc.

Tellurian was founded by Charif Souki and Martin Houston and is led by President and CEO Meg Gentle. Tellurian plans to build a natural gas business that includes development of the Driftwood LNG terminal, an ~ 26 mtpa LNG export facility, and an associated pipeline. Tellurian intends to create value for shareholders by developing low-cost natural gas-related infrastructure, profitably delivering natural gas to customers worldwide and pursuing value-enhancing, complementary business lines in the energy industry. Tellurian is based in Houston, Texas, and its common stock is listed on the Nasdaq Capital Market under the symbol "TELL".

For more information, please visit www.tellurianinc.com.
Follow us on Twitter at twitter.com/TellurianLNG

http://www.marketwired.com/press-release/tellurian-enters-into-agre...

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IMO, an end user also acting as operator of natural gas wells would be bound by Article 122 of the Louisiana Mineral Code which requires that the lessee is "bound to perform the contract in good faith and to develop and operate the property leased as a reasonably prudent operator for the mutual benefit of himself and the lessor".  Under 122 Tellurian would likely choose a sales point that makes sense and would be defensible in court.  For example, the monthly settlement price at the Henry Hub would fit that description.  If so, Tellurian would pay royalty interests in their operated units based on that price.  Tellurian could not make up a price or choose a sales point that didn't fit the operating area and the location of the end use.

Most mineral owners know that few, if any, Haynesville operators are presently paying the Henry Hub price for NG. Anyone who checks their monthly statements sees a wide discrepancy between the hub strike price for a particular month and what is being paid to mineral owners. When asked, some operators say they are selling at a day price, which at times can be $1 less than the HH strike price for a particular month. So unless a mineral owner can hire a lawyer to confirm there is not a NG price manipulation to the operator's advantage, the little guy is getting the hit. Odds are that Tellurian will go for maximum profit to cover its less than sweet spot acquisition, which means it will pay what the market will bear. 

Tellurian has not paid its' first royalty check and they are being described as the next evil landowner hating operator. By and large the private operators have been more landowner friendly than the public ones, so why not give them a chance before throwing them under the bus. Since I work in the industry and I am a landowner, I would like to see more operators come into the play as that gives landowners more leverage.
Jay

The net royalty paid to Haynesville Shale mineral lessors is based on a price at a sales point less post production deductions.  For the majority, the problem is not the price at the sales point, it is the nature and amount of the deductions for transportation and treatment.  As Jay rightly mentions, there is no way to know what those deductions may be until Tillurian's gas is flowing.  GHS members with minerals in the existing units that are included in the 9200 acres can report to us any changes in price and/or deductions when the change of operator occurs (most of the acreage is HBP and paying royalties now) and again when Tellurian's LNG facility is operational.  Much can happen along the way to funding and constructing a major LNG export facility.

Skip, in your opinion, when do you think we will know which units/acres will be included?

I doubt that will be announced specifically but when the seller is identified I can post the units they operate.  After the sale there will be a change of operator process with the state but that will likely take a little longer.  If you'll remind me when the time comes, I'll post a list of their units by section-township-range.

Thanks so much!

SL, I don't think we need to wait to hear the answer.  I'm sure Jay is correct that these are the LA Haynesville Shale Units of Samson Contour, now Rockcliff.  The vast majority of Haynesville assets that Rockcliff acquired are in Texas.  They had to take the LA rock to get the TX rock and then they looked to divest the relatively small LA acreage.  Although the press releases have as yet not named the sellers the key statement is that the 9200 acres has 19 producing wells.  The exact number of producing wells that Samson Contour has reported to the state.  Here is a list of those 19 wells.  I have bolded the section-township-range to help members figure out if their minerals are included.

239551

HA RA SUF;WOOD 30 H

 

10

 

S322

1843

12-MAR-09

030-14N-09W

41

 

240191

HA RA SUM;WOOD 31 H

 

10

 

S322

1843

03-SEP-09

031-14N-09W

41

 

240288

HA RA SUL;BREEDLOVE 36 H

 

10

 

S322

1843

05-OCT-09

036-14N-10W

41

 

240329

HA RA SUJ;BREEDLOVE 25 H

 

10

 

S322

1843

13-OCT-09

025-14N-10W

41

 

240542

HA RA SUA;PRIEST 12 H

 

10

 

S322

2584

08-DEC-09

012-11N-11W

16

 

240781

JUR RA SUB;BLACKSTONE 2 H

 

10

 

S322

6562

29-JAN-10

002-13N-09W

41

 

240890

HA RA SUN;SPEED 32 H

 

10

 

S322

1843

22-FEB-10

032-14N-09W

41

 

241542

HA RA SUY;MAYFIELD 9 H

 

10

 

S322

4313

16-JUN-10

009-17N-15W

09

 

241590

HA RB SUHH;RUFFIN 6 H

 

10

 

S322

7651

28-JUN-10

007-11N-10W

16

 

241819

HA RB SUEE;RAMBIN 36 H

 

10

 

S322

7651

09-AUG-10

036-12N-11W

16

 

241878

HA RB SUGG;RAMBIN 1 H

 

10

 

S322

7651

18-AUG-10

036-12N-11W

16

 

241934

HA RA SUBB;BLUE 8 H

 

10

 

S322

4319

25-AUG-10

008-10N-10W

35

 

242003

HA RB SULL;OXBOW 8 H

 

10

 

S322

7651

13-SEP-10

008-11N-10W

16

 

242581

HA RA SUC;SAMUELS 18 H

 

10

 

S322

2584

29-DEC-10

018-11N-10W

16

 

242864

HA RA SUN;MOFFETT 13 H

 

10

 

S322

4319

02-MAR-11

013-10N-11W

16

 

242924

HA RA SUI;UTLEY 11 H

 

10

 

S322

2584

14-MAR-11

011-11N-11W

16

 

243497

HA RA SUJ;ADAMS 19 H

 

10

 

S322

2584

06-JUL-11

019-11N-10W

16

 

243600

HA RB SU90;NRG 29 H

 

10

 

S322

7651

28-JUL-11

029-12N-10W

41

 

243676

HA RA SUAA;CREST 5 H

 

10

 

S322

4319

12-AUG-11

005-10N-10W

35

 

Thanks, Skip.  Any news on a company named Empire purchasing 11,200 acres in Haynesville?

"In the Haynesville" is a little problematic.  You see, the Haynesville Shale is only a small portion of the Haynesville Formation.  The rest is the Haynesville Sand.  Big, big difference.  The purchase you refer to is not the Haynesville Shale.  Here's a cut and past from an article on the Empire acquisition.

Empire Petroleum Corp. said Sept. 6 it entered a term sheet to acquire producing Haynesville assets in North Louisiana.

The assets comprise about 11,000 gross (9,000 net) acres of leasehold HBP in the East Haynesville and Oaks fields in Claiborne Parish, La. Current production is about 400 barrels of oil equivalent per day from 28 wells, with net cash flow of roughly $200,000 per month.

The seller and terms of the transaction were undisclosed. The wells to be included in the transaction target the Pettit, Lower and Upper Haynesville, Cotton Valley and Smackover reservoirs, according to the company release.

Claiborne Parish is far removed from the nearest active, economic Haynesville Shale well.  And, the Haynesville Shale does not produce liquids, just dry natural gas.

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