As excitement builds over the possibility of an economic AC play and the opportunity for some private mineral owners to receive an offer to lease, I think a note of caution is in order. The history of exploration and production, or more specifically the lack of production, in the parishes currently being targeted for leasing programs appears to lend a certain mind set to expectations. There is a common history among numerous land/mineral owners of multiple leases over decades of time with no successful production which, for some, leads to an over emphasis on the bonus dollar amount and less concerning the other lease terms.
It is worth noting that the prior history of largely vertical drilling and lack of technology specific to very challenging formations is not a good decision making model for what has become the new normal in the last ten years. If you are following the general technical advances across all basins and the success of the AC in Texas in particular, you ought to have an increased expectation that this time may be different for central LA. I strongly suggest that GHS members with significant size acreage ownership to get the assistance of a law firm experienced in negotiating O&G leases for land owners. It is still too early to fully know how this AC play will turn out (see the TMS) however if it does become economic, the lease bonus will soon be of less long term value than a larger royalty fraction. For those who have surface ownership there are very important terms beyond the bonus. If ignored those terms may create regrets for decades to come.
My general rule of thumb is: if the bonus payment for your signature on a O&G lease will make a significant difference in your financial security or rescue you from an immediate financial emergency, it's acceptable to place your emphasis on the bonus. If however you, and your family, have a measure of financial security and do not need a cash bonus for some compelling need, have patience and get some professional help. If this AC play is a bust, you may regret to some extent not taking a lease in time. If this AC play is a success, you will almost certainly get considerably better lease terms and the long term difference in royalty revenue could easily be many thousands (or hundreds of thousands) of dollars more than your bonus check.
Well said Skip. Hope folks pay attention to your comments.
Thanks Skip, points well made and taken.....patience and vigilance!!
Skip, thanks for posting this.
Good advice Skip
I agree Skip! The offer so far is insufficient in my opinion. As I have said before your proximity to EOG area of interest is important. If there is some distance I can understand taking the bonus money as this is all we have seen in the past. However we must remember how fast technology is advancing. What was uneconomical 5 years ago may not be now.
Lots of things can change in the AC section as you move away from where EOG has been drilling. Depth, reservoir quality (porosity and perm), natural fracture presence (or lack there of), etc. all will impact prospectivity.
In my opinion, this is no "distance" factor that mineral owners need to consider when comparing their areas to where EOG has drilled.
And I will bet that not all of EOG's present position is of equal prospectivity as to the AC section.
I am certain that EOG has mapped every log derived parameter that is available across an area that is much larger than their present acreage position (130,000 acres as noted in one publication). Prior to moving into Louisiana, EOG had chased this same AC play in Texas where they had massively more subsurface data (as a result of their Eagle Ford drilling - which gave them a "free look" at the AC section on the way to the EF).
And they are using that technical information to help direct their efforts in Louisiana..
One can assume that they have a good idea as to what is best to give them optimum well results (e.g. latest AC wells on their Kilimanjaro lease in Karnes County were 6386 BOE per day (82% oil) and 5800 BOE per day (also 82% oil) on one inch chokes for 8298' and 2800' laterals, respectively.
Comparing this to their Avoyelles Parish IP rate of 1313 BOE per day (85% oil) for a 4275' lateral makes a statement about some possible differences between the ultimate AC sweet spot and what is present in Louisiana.
But these initial results in Louisiana may improve over time as the recipe' for success is figured out (as to landing zone and frac approach).
Or it may not improve very much since there are no guarantees of improved completion performance.
One of my major points here is that EOG has done more work on this play than any other company in the industry - and has more info too (with respect to core and high tech logging info as well as how to drill and frac and produce a well).
They have developed an approach that has been vetted over time as they have been the leaders in getting into such plays as the Eagle Ford, Austin Chalk frac play and certain parts of the Permian Basin. Plus this approach has proved successful in evaluating certain plays that have not "worked" which they eventually abandoned over time (e.g. Pearsall Shale, Goodland Lime, etc.).
They are in what they believe is the "best" part of the AC play in Louisiana. Other areas have been intentionally bypassed by them - and these are the areas that other companies are trying to lease to get into what they believe is something similar to EOG's area of interest.
As Skip has noted, the key in leasing (aside from each individual's personal financial situation and desires) is the balance between a getting a one time lease bonus versus getting an operator who will drill multiple wells (laterals in this case) that will yield unconventional reservoir royalty payments over time (i.e. high initial rates and payments that drop to about 10% of the initial rate after 3-4 years of production).
There is no guarantee that the AC play will work over a widespread area in Louisiana. The super sweet spot in Karnes Co Tx is very limited in areal extent - but the play (on a lesser extent) covers a much larger area. And well results dictate lease terms.
I would recommend that mineral owners do their best to get an understanding of what the subsurface AC section is like in their areas and how it compares to successful AC areas. Depth, thickness of section, historical drilling success, etc. are all important issues. the Louisiana on line data base (SONRIS) is a great resource for information. If you have a larger position, getting a consultant to provide a generalized analysis may be something to do.
Trying to understand the limitations or pluses in any one area can be a negotiation chip to use when dealing with brokers.
Not all minerals are created equal. Just as not all operators are as good as others (e.g. EOG). This combination can give one a wide range of results in a complicated play like the Austin Chalk.
This is no different than what has been seen in similar unconventional plays like the Eagle Ford, Marcellus, Utica, TMS, Bakken and Permian basin (to name a few).
Rock Man are you the same Rock Man that post on the mineral rights blog?
Do you know how deep the wells are in Karnes County, compared to Avoyelles Parish well. thanks
I picked a completed EOG horizontal AC well in Karnes County, TX at random. The Fugi Unit 104H has a True Vertical Depth (TVD) of 11,129' and a Measured Depth (MD) of 17,727'.
The EOG Eagles Ranch 14H has a TVD of 16,026'.
Thanks, that's a big difference between ( TVD ) and ( MD )
The difference in TVD and MD is the lateral length in the Eagle's Ranch. ~6598'
The difference in TVDs between TX and LA is the important fact.