Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on February 21, 2018 at 12:48

John, I sat with Paul at the DUG Haynesville Conference in Shreveport today.  Welcome to GHS.  Charles Goodson, President and CEO of Petroquest spent half of his presentation covering the Austin Chalk.

Permalink Reply by Dion Warr, CPL on February 20, 2018 at 13:03

Skip:

NRI stands for net revenue interest.  It is that portion of the proceeds attributable to the lease which remains after all lease burdens have been accounted for.  It includes royalty interest (RI) and any overriding royalty interests (ORI or ORRI; initials vary depending upon source) carved out of the lease.

Overrides are created and/or reserved in industry trades.  They are an exclusive burden to the lessee(s) who own and operate the lease.  Dependent upon the trade, overrides may be a further consideration for services in kind or in lieu of cash consideration, or reserved in a trade of rights in which the assignor has the option to convert a position into a future working interest, as is the case in a farmout.  These trades represent a separate transaction between knowledgeable parties and are highly negotiable.  They do not represent “everything that the seller retained that the Lessee didn’t pay to the owner”, nor are they a burden to the Lessor’s interest.  The NRI relates a level of income economics to the WI owner which can be measured against their risk tolerance and other factors at play with any other prospect.  In general, lower NRI represents properties that are less attractive to trade and/or develop, all other factors being equal.  When the NRI is likely to be impacted by a negotiated reserved ORI at the point of sale, the buyer may negotiate on a reduction of these terms against other terms of the trade.  What cannot be negotiated in the industry trade is the royalty interest, which is fixed and set by the lease.

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Permalink Reply by Thomas Maglone on February 20, 2018 at 3:38

When you go to sonris web site, click data access. Then go to well information, click it. Go down to, Permitted wells by Date/Parish, click Lite. Put in the dates you want and select parish. There are different ways to do it, best for me.

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Permalink Reply by Skip Peel - Mineral Consultant on February 20, 2018 at 3:40

thomas, its unclear to me if your reply above is an answer to my question or related to some other reply.

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Permalink Reply by Steve on February 20, 2018 at 5:26

EOG is leasing in WFel. now

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Permalink Reply by Skip Peel - Mineral Consultant on February 20, 2018 at 5:32

You are correct, Steve.  You might consider also posting that fact in the W. Feliciana Group.  Here's why.  If a member is not keeping up with Main Page discussions, they could miss your reply.  However, when you post a discussion or reply in a group, all the members of the group get an email alerting them to your post.  Of course that also happens when you post in the Austin Chalk group, just not Main Page discussions.

http://gohaynesvilleshale.com/group/west-feliciana

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Permalink Reply by John Lann on February 20, 2018 at 5:35

North, South, East, or West ? 

  Someone wrote a couple of days ago about a dollar amount that did not mention anything about location.  I had replied and ask if they could maybe name a town, or community or area.  I did not see a reply.  Information is great, but list as much details as you know.

Thanks, John Lann     East BR Parish

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Permalink Reply by Thomas Maglone on February 20, 2018 at 6:28

In East Feliciana west of Slaughter, One thousand an acre. % unknown, 20% I was told 2nd hand.

421 North of Jackson La one thousand acre and 22 1/2%

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Permalink Reply by Skip Peel - Mineral Consultant on February 20, 2018 at 6:35

The 22 1/2% royalty is good to hear.  I suspect that it was granted to someone who has a large acreage ownership and some professional assistance.  If not leased directly to the company interested in development, that would result in a 2 1/2% royalty override to the lessee on any future production. 

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Permalink Reply by Dion Warr, CPL on February 20, 2018 at 16:25

Skip:

I have seen this assumption (or similar) made and posted elsewhere.  I feel that there is a fundamental misunderstanding as to what an overriding royalty interest is, what it means, and what to take from its existence.  I have attempted to explain what an ORI is (and what it is not) above.  The above statement seems rooted in either a mistaken assumption, conflation and/or an oversimplification of the terms.

Per the above, there is an assumption that "the company will find that a .75 NRI acceptable."  This is a fallacy.  As outlined above, the NRI position is a means of gauging income economics against risk tolerance in a given prospect area.  I personally have worked in areas or on prospects where a .80 NRI was deemed unacceptable for the parties, and in areas where a .72 NRI was deemed wholly acceptable - as well as on specific properties where a .70 NRI was part of the final negotiated terms, along with other options and elections in reserve by the seller.  The lessor generally has no idea why the effects of a certain trade occur, what other property/ies may be involved in a given trade, and what weight was given to any particular term, geographic area or other aspects of the trade.  To presume that the NRI somehow weighs on what the lessor should consider in leasing is assuming that one has control of all or many factors downstream of the lease negotiation itself.  Very few lessors are so situated; the lessor should be concerned about terms that have material effect on them: bonus, primary term, royalty, renewals and/or extensions, Pugh clauses, and other individually significant terms (surface, access, correlative rights granted, restoration, etc.)  What's more, it presumes that whatever the Lessor "leaves on the table" below a fixed NRI is ripe for the taking by others downstream, and all of the NRI below said assumed level can be gained by the Lessor if only he has the sense to trade for it.  Neither of these are true.

In the instant case for this original post, based upon this assumption, the trade to COP would have effectively left a 5% ORI reserved to Amelia at closing based upon NRI calculation.  The recorded documents contradict this assumption - the NRI calculated reflects an NRI transferred to COP of .77 NRI (leases less present burdens and ORI reserved up to 23%).  If a lease such as the above were made subject to the terms of such a trade, the reserved ORI value would amount to 0.5% of 8/8, which is a far cry from 2.5%.  In either case, the Lessor and his trade is unaffected.

These calculations also assume that a party negotiating on the Lessor's behalf did not seek compensation in the form of a royalty deed from his Lessor, perhaps with and without a percentage of the bonus consideration.  At which point, 22.5% may be good to hear, but if, as was the case for many negotiated leases in the Haynesville ca. 2008, the "landowner's negotiator" earned 10% of the bonus and 4% of the negotiated royalty, the owner in this example would have received 90% of the bonus and 21.6% RI, and the negotiator would have received 10% of the bonus and a 0.9% RI.

Finally, and it almost always starts an argument or debate as to motives of the poster(s) but I'll say it again anyway, it is important to understand that E&P economics are judged by major and major independent oil and gas companies on a global basis based upon all areas in which said company is looking to acquire and/or develop interest.  One can feel that only 25% RI is acceptable.  One can assert that "the company needs your rights and will come to you".  As long as the terms are within their acceptable calculus, this can hold true - but your minerals and right to capture are only worth what a capable purchaser will pay or trade for them.  When terms become burdensome, companies can and will look to develop elsewhere (either within or without your geographic area), and can and do change areas of interest based upon these concerns as well as a myriad of other factors and events which can high-grade or diminish the area of interest in which the Lessor owns interest.  No matter how much money is spent on leasing and bonus, Lessees can and do pull offers, release leases and move on.  Many of the Lessors in this corner of the world have direct knowledge of the "doo-dah" days of the Tuscaloosa Trend, and many members of this site look back with fond remembrance with "the glory days" of the Haynesville Shale, each marked with stratospherically high bonuses and dreams of chickens in every pot.  Both leasing booms quickly and catastrophically tanked under similar circumstances - realities of the proving up of the real metrics of production and a withering retreat of natural gas prices that was a boon to consumers but a bane to lessors, royalty owners and producers.  The wells and the actual economics will tell the tale.

Meanwhile - the mission of the lessor is clear: make the best deal you can, make the best decisions you can, armed with all of the best information that you have and wise counsel available.  Make your deal, and resolve yourself to it.  Make peace with yourself that you made the best decision(s) you could.  Early graves are made in hindsight wishing for gifts of foresight in the happenstance.

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Permalink Reply by John Matherne on February 21, 2018 at 3:04

Well put Dion

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Permalink Reply by Skip Peel - Mineral Consultant on February 21, 2018 at 15:59

Dion, thank you for the clarification and the dissertation.  :-)  You really should take credit for that last line if it is yours, or provide attribution to the author.

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