Replies to This Discussion

Permalink Reply by John Brewster on March 14, 2011 at 5:31

It is difficult to know when to lease.  Those of you "holding out" for 1/4 are taking some risk in my humble opinion.  I own significant minerals in three states.  Generally I ask for 1/4 royalty.  If an area is hot, I can get that - sometimes with bonus but often with no bonus.  Being in the oil business, i know that owning a larger royalty is more valuable than bonus.  Having said that, my point is: to my knowledge, Pine Belt has not offered more than 1/5.  The memoranda of lease they filed could be to hide 1/4 royalty, but we cannot know.  I was convinced that they are trying to hold the line on 1/5.  Secondly, I don't know anyone who has really nailed down who the lessee is, and what the objective may be.  There is widespread speculation it is EOG.  The activity suggests this is a very large buy area.  Those expenditures are generally not undertaken unless the company has strong technical reason to think there is a big play in the future.  Surprisingly, however, I've seen nothing in well results posted at the AOGC which suggest that anyone has made a signficant new discovery which would spark a leasing play like this one.  Either there has been a breakthrough that is being kept "tight" (most likely), or the company doesn't have a dramatic test in the field but believes it can frac say the brown dense successfully (possible).  Would a company actually lease 100,000 acres or more without confirmed proof of the play.  In this competitive land market, that is possible because the land costs are modest in the overall scheme.  If anyone has any reliable information about the drilling objectives and any recent activity that might have demonstrated that technology has unlocked an important new resource, please post something.  Otherwise, holding out for 1/4 may be a long wait.

Permalink Reply by North LA on March 14, 2011 at 8:53

John,

 

If I owned a large amount of land I would consider 20%, but with the amount I have I can afford to wait.

Permalink Reply by Polly Ann Foote on March 13, 2011 at 14:37

Pinebelt has filed a slew of leases in Columbia County. The royalties listed ranged from 17.5% to 1/5th. For lessors such as Deltic Timber they have filed memorandums of oil and gas lease. They are many such memorandums so if they are willing to publish that they are granting 1/5th what else is it they want to hide. I have seen two lease forms - one is particularly injurious to lessor. In those particular leases, lessors had stricken much of offending options. Also in those particular leases, lessor said they were to be paid as follows:
A. On oil 20% of that produced and saved from said land.
B. On gas 20% ....
C. On all other minerals expressly including sulphur mined and marketed, Lessor shall be paid 20% of the current market price produced when sold by Lessee.
They also stipulated that NO cost shall be charged to the royalty Interest created under this lease except severance and applicable taxes.
These were 4 year leases with an option to extend for another 4 years for a $300 per acre bonus for the extension.

Permalink Reply by The_Baron on March 14, 2011 at 4:40

Polly,

 

Are they recordind new leases on a daily or weekly basis, or does it look like they just recorded one or two big batches?

Permalink Reply by Polly Ann Foote on March 14, 2011 at 11:21

It looks like they and Triad are recording large batches. There is something curious about these leases. Both PineBelt and Triad are recording leases for the same areas and yet there seems to be no overlap, i.e. I do not know of any lessors contacted by both. Has anybody out there been contacted by both Triad and PineBelt? Also I cannot tell if there is some logic as to how the leasing has been split. There are several large landowners that I know have leased and their leases or memorandums have not been recorded - they will undoubtedly be memorandums. I have been told that one large landowner was granted a 1/4th royalty. PineBelt seems to be more generous. From our experience Triad does not seem to want to grant 1/5th or a no cost clause. Triad had no leases recorded that ONE COULD READ with a royalty greater than 19% whereas PineBelt had many with a 1/5th royalty. Any Triad leases with a royalty equal to or greater than 20% will probably be memorandums.

Permalink Reply by The_Baron on March 15, 2011 at 3:12

Thanks Polly. That's about what I have seen and heard as well.

Permalink Reply by John Brewster on March 15, 2011 at 4:40

Obviously I have no way to know, but I wouldn't make too much of whether leases are recorded regularly or in large batches.  Different companies use different approaches.  Also, the fact that two large land contractors (Pinebelt and Triad) are taking leases may be misinterpreted.  It could be that both are working for the same client.  That would also suggest that both have the same buying criteria.  If my hunch is correct and that is right, there is no need to speculate whether both are paying 1/5 or one might be paying 1/4.  Alternatively, Triad could be working for CHK.  That would be very interesting.  Chesapeake likes to jump into big lease plays by other companies.  They generally do so by paying more for leases.  That could also explain why Triad seems to be recording more memoranda of lease.  Isn't this fascinating??  One way to get more information is to watch the interaction of Pinebelt and Triad people at the courthouse when they doing title work.  (That work has probably been done?)  Another way is to find out where the land people are staying, and go to their motel for breakfast.  Are the representatives of the two companies talking with each other, or keeping quiet and separated?  There are lots of ways to figure things out.  Best of luck to all.

Permalink Reply by Dan Arnold on March 15, 2011 at 8:04

John you forgot to mention why the filing of Memorandums. Some have speculated that it is to limit the information filed of record. Another (and very common) reason is that most counties charge by the page for filed documents. Leases are three or more pages long, while most Memorandums are a single page. Imagine the expense of filing Leases for all the multiple Lessors on only 10,000 acres, more acres = more Lessors and more filing fees.  It is common to file early leases and then move to Memos as the numbers of lessors starts mounting up.

It is very common to file batches of leases over a period of time, rather than try to record every lease as it comes in, or overload the Clerks office with thousands of leases and/or memorandums at one time.

It seems people tend to look for mysteries in the ordinary and speculate on all sorts of odd things.

Permalink Reply by DJG on March 15, 2011 at 8:47

In reality, the memorandums that are being filed are generally 1-2 pages each.    Full leases generally in the 4-6 page range.

 

When the O&G is spending 10's to 100's of thousands of dollars on each lease, it clearly is not an issue that an extra $10 to $20 in County Clerk's fees is really an item that the O&G bean counters are going to be concerned about.

 

That said, the reasons for filing memorandums are more likely tied in to concerns by the O& G to not make their better lease terms a public record.   In some rare instances, it might actually be requested by the mineral owner for privacy reasons as well.

 

If you sort through many leases at the local county clerk's office, you will find plenty of 4+ page leases that are NOT filed as memorandums when the agreed upon terms are with the O&G standard contract or if the agreed upon royalty is on the lower (i/e - 3/16%) rate.

Permalink Reply by John Brewster on March 19, 2011 at 5:59

I am happy to comment, and believe we're in basic agreement.  I have never known anyone to use memoranda to save filing costs, but I suppose that is possible.  As you suggest, lease brokers use them to keep lease terms secret in a competitive environment.  I agree, whether leases are recorded piecemeal or in batches has no import.

Permalink Reply by L Davis on March 19, 2011 at 2:54

I know a person that has acreage in both Columbia and Union Counties and has been contacted recently by both Pinebelt and Triad.  The lease offers from both were $200 per acre and .1875 royalty and was told by both landmen that was their rate for small tracts.  The acreage is close to Hwy 82 which is in the northern area of interest.

 

Pinebelt was in Columbia County first and when the EOG well in Lafayette County turned out bad they stopped making lease offers and started moving people from Columbia into Union County.  Triad showed up about that time or later.

 

Some company is inquiring about buying surface acres for a pipe staging area on or near hwy 82.

 

Many have implied that EOG is behind the Pinebelt effort.  Local rumors say it is a much larger company but I do not wish to name the company because it is rumor.

 

 

Permalink Reply by John Brewster on March 19, 2011 at 5:51

Several observations: EOG is large enough for a lease play of this size.  Of course, the more obvious guess would be CHK (Chesapeake) which specializes in huge lease plays.  However, EOG might be more inclined to take a position in an exploratory play, and I can't account for the persistent and longstanding rumor that it is EOG.  CHK likes to blanket a play with overwhelming leasing after a discovery.  That is why I posted asking whether anyone is aware of a well in the past year that might have tested the Brown Dense or any other objective which could explain this huge lease play.  A third (dark horse) buyer could be SWN.  They did a nice job keeping the Fayetteville shale tight, but I doubt this is Southwestern Energy.  As for the $200 bonus and 3/16ths that seems to be the initial offer.  Lease brokers will be a little more aggressive on larger tracts early in leasing, but towards the end - when they are trying to fill in, even small tracts can usually command better terms.  And remember, when they integrate at the AOG Commission, they have to offer unleased mineral owners the highest price offered.  That is why I suspect they are trying to hold the line on 1/5 (unless they have paid 1/4 and used memorandums of lease to keep lessors from knowing).

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