BROWN DENSE PUZZLE GETS A BIG LOUISIANA PIECE

Today's Louisiana Department of Natural Resources, Office of Mineral Resources, State Mineral & Energy Board July auction of publicly owned mineral tracts includes 29 bid tracts totaling over 1500 acres in 3 parishes: Union, Claiborne and Lincoln, with the bulk of the tract acreage concentrated in Union.  IMO, these tracts are associated with the Lower Smackover/Brown Dense prospective area which includes a similarly sized and adjacent area in S. AR.  The bid tracts span a wide area that roughly is described in extent on the Northwest by Township 23 North, Range 5 West, the Southwest by Township 20 North, Range 3 West, the Northeast by Township 23N, Range 1 West and the Southeast by Township 20N, Range 2 East.  These bid tracts represent the beds and bottoms of state owned water bodies and are more informally defined as being located in the proximity of Little Corney Bayou, Corney Creek, Bayou D'Arbonne, Middle Fork Bayou and Bayou De Loutre.

 

The import of these bid tracts, other than their specific locations, is that they are bids for state leases.  By law state leases are for a primary term of one year.  They may be extended for two additional years by the timely payment of a lease bonus equal to one half the original bonus amount for each additional year.  For that reason, there is no need for companies interested in developing a prospect to acquire them far in advance.  The time to acquire the rights to the state lands is after building a lease block(s) composed of private mineral interests.  It is also in the interest of energy companies to acquire the state leases late in the process of building a lease block owing to the fact that the bids for those tracts, including bonus bids, are of public record and therefore are of value to mineral owners in the negotiation of future leases. 

 

A state bid tract is included in the monthly auction at the request of the owner which may be a local municipality, school district, levee board or other public body, or the tracts may be nominated by a party interested in bidding for the lease rights.  All 29 tracts in the July  auction are nominated by Leslie M. Cooper.  It is common for the nominee of state bid tracts and the bidding entity, whether one and the same, to be a third party representative of the company actually assembling the lease block with the intent to develop.  That is to say that those hoping to know the name of the energy company or companies will not likely find their answer with these auction results.  What will be established by these bids is a baseline value for leases in this prospective area at this early point in the play where there are few drilling and production units and even fewer well permits not to mention one completed well which is likely not economic.  Lease values and offers are influenced by competition.  It will be instructive to see if the auction of these tracts draws multiple bidders.

 

For those with a stake in this emerging Brown Dense prospect, I suggest the following:

  • Do not get in a rush to lease.  Monitor the progression of unitization and well permits.
  • Share the basic information as it unfolds with family and neighbors. 
  • Allow the market time to define the range of values for drilling rights and don't expect any lease offers outside of that range unless you have an unusually large or strategically located mineral interest.  There is no such thing as "the going rate".  Each mineral tract is unique as to its value.
  • Consider getting professional assistance but keep in mind that you need professionals with Oil & Gas experience, not just a lawyer.
  • Understand that the order of priority in lease terms are the basic clauses beneficial to the lessor: royalty, no cost royalty and vertical depth limitation for any mineral interest no matter the size.  For those who live on their mineral tract, depend on well water or own a tract larger than a few acres, there are additional considerations involving surface use and unitization which require additional lease language and professional counsel.  The least important part of any lease offer is the bonus.  Negotiate that last.
  • Discount the "wishful thinking" factor.  This play is not proven and could dissipate and disappear in relatively short order.  In other words, be reasonable in your lease expectations.  However, keep in mind that should your area of the play prove productive, you and your future generations will live with the terms of the lease agreement negotiated now potentially for decades, long after even an impressive lease bonus is long spent and forgotten.  There is much truth in the saying, "the real money is in the royalty".

 

I will post the results of the auction bids later today when they become available.  Good Luck to all the members in the Brown Dense prospective area.

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Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on July 14, 2011 at 4:23
It brings up the question of whether there really is an energy company or companies behind T S Dudley or if this is simply a speculative venture by Dudley or for a non-operating client(s).  At these bargain basement lease acquisition costs, the large number of leases at 4 year primary terms and 4 year extensions and the focus of operators to move to liquids, it is possible that this an effort to build a lease block and assign all or portions to companies who would be willing to at least drill some test wells.  If indeed there are any.
Permalink Reply by The_Baron on July 14, 2011 at 8:25
i think T.S. Dudley would be working for an operator intent on developemnt. Theses state leases have only 3 year terms, not really the best mode for speculators.
Permalink Reply by Skip Peel - Mineral Consultant on July 14, 2011 at 8:36
They are a good way to tie up the development rights on the cheap as you pointed out earlier.
Permalink Reply by The_Baron on July 14, 2011 at 9:52

The problem with these tracts though, on closer inspection is that you have multiple leases that will have releativly small acreage per unit. I am assuming the Brown Dense will go into 640 acre units.

 

There is no renewal, and there is the delay rental.

 

 

Permalink Reply by North LA on July 14, 2011 at 10:07

Baron,

 

What is a delay rental?

Permalink Reply by Two Dogs, Pirate on July 13, 2011 at 17:00
I have heard that TSD requires landmen to sign contracts that doesn't allow the landman to work in their area of interest for anyone else for three years. I would think this contract would keep most of the professional landmen out of the hiring pool. You want to deal with rookies then so be it.
Permalink Reply by Geoff Jones on July 14, 2011 at 4:29
One of the TSD landmen gave me a call and I asked about a Pugh Clause.   She had no idea what I was talking about.   They also leased me on a tract where all I own is non-participating royalty.    I guess she also doesn't understand what "non-participating" means.   I don't understand why their client doesn't make them hire professionals??   They may not own near as many acres as they think they do in the play.
Permalink Reply by Skip Peel - Mineral Consultant on July 14, 2011 at 4:35
Now there's a sad state of affairs, a supposed "landman"  that is not aware of Pugh clauses and NPRI.  Even "rookies" should have some grasp of basics.  If the landman in question is not an anomaly then this indeed would appear to be a very speculative venture.  And a poor reflection on T S Dudley as a company.
Permalink Reply by The_Baron on July 14, 2011 at 8:28

I imagine they are throwing bodies into this play.

 

And Two Dogs, I guess it would depend on how big the AMI is, how much they pay, where the landmen are from, and most importantly, how hungry the landmen are for work.

 

I guess if there was enough cash involved I would hit the road under such terms for a little while, maybe there is work up in Wyoming during fishing season!

Permalink Reply by landman 7762 on July 14, 2011 at 11:48

I typically do not get involved in posting on this forum but I feel that some of the things said in this thread warrant response. I may have misinterpreted the post and if so please forgive me. I would like to address several things mentioned and leave it at that.

1) The fact that TSD requires its landmen to sign contracts is not an anomaly. It happens often in this business and it is standard business ethics for employees to respect the confidental nature of information obtained while working for an employer. If a landman would leave a project and try to buy leases for his or herself, or for anyone else for that matter, within the same prospect area it would be a very unethical practice. An ethical landman should and would agree with this statement.

2) As for the pugh clause deal, I don't know how much of that I believe, but I would suggest that Mr. Jones insist on speaking with the supervisor of the "supossed" landman that contacted him. TSD has a website. Im sure he can find someone to speak with and I'm sure that if this is in fact true, that landman wouldn't be employed for much longer. TSD did not get a good reputation in this industry by letting people like that represent them.

 

Permalink Reply by Two Dogs, Pirate on July 14, 2011 at 15:33
landman 7762, Paragraph 1) if it is true, a contract for 3 years would seem to be a bit long? I would agree with you that a reasonable time frame would be required but 3 years seems a bit too long.
Permalink Reply by Mary Alison Anders Knighton on July 15, 2011 at 13:34

Thank you Skip for your insight and knowledge.  I've been out of the loop recently am now back.  I have leased land in Union Parish.

 

Mary Alison Knighton

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