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Permalink Reply by Phillip Briggs on October 10, 2009 at 6:09

I think page 4 of the article sums it up quite nicely.... a lawyer, that's reaped hundreds of millions in class action lawsuits, is taking on a case, where the dispute is over a ~$600 discrepancy... and less than $5K total... all in an effort to gain more millions for himself, and pennies for the individual mineral owners.

I work the courthouses in Panola and Shelby counties, every day. Thursday afternoon, there were four people in the records room in Panola County, and one of them was a high school student playing solitaire on his computer, waiting for his mother to get through working. It's slower than slow. Last summer and fall, the fire marshall had to post signage on occupancy for the room. Fist fights broke out over books. There was literally no standing room.

Yes, there is a conspiracy going on. It's called the market! Shortages of gas a few years back raised the price... with the prospect of making a fortune, companies invested in leases (spending money like a drunken sailor) and drilled wells, thinking there was no end to the party... Lots of them... so much in fact, that now we have an oversupply, and the prices have dropped. The drunken sailor is gone. Last summer, people were being hired literally off the streets to research mineral tracts. Now, generally, it's an older bunch of landmen and women doing the leg work in the courthouses....

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Permalink Reply by Grillin' - MmmMmm on October 12, 2009 at 2:17

you hit it Phillip. Multi-million dollar lawyers filing $5000 lawsuits is a sign that he's chumming the waters in hopes of his typical big payday class action lawsuit! He's on a fishing expedition. I hope he gets booted out of court and the judge warns him to stay the heck out of his courthouse! This whole series of suits smells to high heaven. He's also planning a "let me make your lives miserable and see if you'll settle out of court" attack.

Folks, the money XTO and others are spending to fight off this leech is money they could be using to DRILL wells on your land and get your royalty checks coming in! However, they have to spend their time and money fighting off these attacks. It will reduce the amount spent at the drill bit, with much of the money going to that "egg sucking dog" (in the words of a famous 'wrassler'!!).

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Permalink Reply by lanadan Ds3 on October 11, 2009 at 3:46

No, Mark (etc) -- YOU read it again. Do you really think ole Aub is gonna hold hands with the other players and stand around the campfire and sing Kum-baa- yaa ? Of course not. He's was making reference to what CHK's was gonna do, and they did it. Last year the plug was pulled and bonus offers plummeted to a fraction of what they were literally HOURS BEFORE !! Had no bearing on market conditions whatsoever. Do the words "arbitrary and capricious" come into play here ? PUH-LEEZE !

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Permalink Reply by Grillin' - MmmMmm on October 12, 2009 at 2:12

What do you mean "had no bearing on market conditions whatsoever"? While these lease bonus levels were falling, did you happen to see what was happening to the price of gas at the same time? Dropping from $14/mcf down to $3. That's a direct hit on revenue which is what's used to fund these leases.

Paying $25,000/acre is "arbitrary and capricious" to me!! It was also driven purely on an overheated market for land and natural gas. As the natural gas market cooled down, so did the market for land and that's what caused the offers to fall.

Why is it okay for a company to drive prices up from $100/acre to $25,000/acre, but it is NOT OKAY for them to drop the price from $25,000/acre down to $5000/acre? Please give me an answer as to why prices always have to go up and stay up?

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Permalink Reply by E & E on October 12, 2009 at 5:48

Gotta respond..........
I can't just sit by on this post Mark. So I am posting 2 different charts to back me up.

1. @ $7 to $8 leasing in the Barnett for top dollars. Let's not forget the Haynesville is estimated 6.5 EUR compared to estimated 2.65 EUR for the Barnett - Can't wait til Jan 2010.
2. March 2008 - HK outed CHK on the Haynesville
3. @ $8 they started leasing here and also pull out of leasing @ $8.
4. We are now bouncing around $5 (dropped to under 3 and up to 5 and yet $7 to $8 is where leases were up to $25,000), so the leases should reflect that midway point and they are not(12,500). However, Desoto leases are back up to 10,000. There isn't really a gauge for us in the Haynesville.
5. The crazy spike in NG was just that a crazy spike and it has nothing to do with our lease prices if you look @ the historical data.
6. They stopped leasing due to the fact that they couldn't HPB all the leaseholds. Convient to use the market as the excuse. At that point they still didn't really know the "core" limits.
7. Most of these companies are hedged @ $7 plus, so they profiting much more off the landowner than $3 gas. Such a fair world: Them getting the hedge prices and us getting stuck with the market price.
8. Lease costs (purchase of leases, minerals, etc.), sales expenses, legal expenses, administrative accounting, and Lease Operating Costs (LOC) are also 100% tax deductible through cost depletion.
9. While Im at it: The intangible expenditures of drilling (labor, chemicals, mud, grease, etc.) are usually about (75 to 80%) of the cost of a well. These expenditures are considered "Intangible Drilling Cost (IDC)", which is 100% deductible during the first year. For example, a $100,000 investment would yield up to $75,000 to $80,000 in tax deductions during the first year of the venture.
10. The amount of gas in place is our gas. That amount hasn't changed, well that will increase come Jan. Leasing is a long term investment period. You don't lease with the idea to just let it expire. You and I both know that NG isn't going to stay low. Will it do a crazy spike again? That we don't know. But what we do know it that if someone leased today, b4 that 3 yr lease expires NG will be @ $7 plus. Now we are back in the starting gate.

NGX09.NYM Natural Gas Nov 09 4.903 12:11PM ET Up 0.133 (2.79%)
NGZ09.NYM Natural Gas Dec 09 5.757 12:11PM ET Up 0.167 (2.99%)
NGF10.NYM Natural Gas Jan 10 6.079 12:10PM ET Up 0.172 (2.91%)
NGG10.NYM Natural Gas Feb 10 6.132 12:05PM ET Up 0.175 (2.94%)
NGH10.NYM Natural Gas Mar 10 6.055 12:07PM ET Up 0.167 (2.84%)
NGJ10.NYM Natural Gas Apr 10 6.001 12:05PM ET Up 0.162 (2.77%)
NGK10.NYM Natural Gas May 10 6.024 11:18AM ET Up 0.153 (2.61%)
NGM10.NYM Natural Gas Jun 10 6.104 12:06PM ET Up 0.165 (2.78%)
NGN10.NYM Natural Gas Jul 10 6.16 11:43AM ET Up 0.139 (2.31%)
NGQ10.NYM Natural Gas Aug 10 6.23 11:36AM ET Up 0.134 (2.20%)
NGU10.NYM Natural Gas Sep 10 6.275 11:55AM ET Up 0.124 (2.02%)
NGV10.NYM Natural Gas Oct 10 6.455 12:06PM ET Up 0.151 (2.40%)
NGX10.NYM Natural Gas Nov 10 6.783 11:37AM ET Up 0.129 (1.94%)
NGZ10.NYM Natural Gas Dec 10 7.152 12:05PM ET Up 0.158 (2.26%)

11. You know I respect your O&G experience and knowledge, but I have to ask you.........Have you gone crazy? lol

12. You know it kinda funny to me that all the conversion in this topic has been leaning towards the lawyers being greedy. What about the mineral owners that have been screwed out of their contracts? Are they just suppose to lay down? Hiring an attorney is their only recourse.

Earlene the barefooted UMO

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Permalink Reply by Grillin' - MmmMmm on October 12, 2009 at 6:14

Earlene: I'm not sure where to start. Your post and charts are perfect for proving my point. Look at the slope/direction of the gas price curve leading into mid 2008. Going up...really fast. That tends to make companies do crazy things like hiking prices paid for leases, drilling services, etc. Then look at the direction and slope of the curve from mid 2008 until now. Price dropping like a freaking rock. Not to mention an economic disaster of Great Depression scale which completely gutted the borrowing market for many of these companies. If you can't see that revenue has been falling for these companies, I can't help you. Look at the SEC reports for each of these companies and see what's happened to their revenue and their net cashflow. Both dropping like a rock. Any 9th grade economist could see what was happening. The only way these companies could survive was to either cut back their spending or increase their debt.

And while you mention all of the tax cuts/allowances you must remember two things: first, just because something is deductible doesn't mean you get the savings right away and you only save the taxes, not the full amount of deductions (credits are 100%). There is a time lag of over 9 months on this "tax savings". Second, there is a lot of noise floating around from our benevolent Democratic Congress and Prez. Obama (peace be upon him) about doing away with these tax breaks. So, in light of uncertainty, you stop planning for the loss.

Bottom line: all of your data basically supports my contention.

Oh yeah, on the hedging issue, you too can hedge your gas if you want but its likely a really bad idea due to risks. Would you be happy for the companies to share the wealth of hedges when they go bad?? Yes, they go bad a lot too!!

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Permalink Reply by E & E on October 12, 2009 at 6:45

I guess you missed my point. Nothing I stated proved your point.
I'm not sure where to start. Your post and charts are perfect for proving my point. Look at the slope/direction of the gas price curve leading into mid 2008. Going up...really fast. That tends to make companies do crazy things like hiking prices paid for leases, drilling services, etc.
I disagree with that analogy. Leasing was going on in the Barnett at top dollar b4 the spike.
Then look at the direction and slope of the curve from mid 2008 until now. Price dropping like a freaking rock. etc.
I agree. No denying that. But we are now recovering and that is one of my points.
So, in light of uncertainty, you stop planning for the loss.
O&G is uncertainty up until the drillbit hits the dirt. They live on uncertainty. Isn't all business dealt under uncertainty?
Oh yeah, on the hedging issue, you too can hedge your gas if you want but its likely a really bad idea due to risks. Would you be happy for the companies to share the wealth of hedges when they go bad?? Yes, they go bad a lot too!!
Hey I have no problem with what is good for the goose is good for the gander. But you are flipping what I said. I sure didn't ask them to come and take my gas. O&G is responsible to market MY freaking gas per DNR. And it is oh so freaking fair that they get one price and I get another??? You sure sidestepped #1, 3, 4, 5, 6, 8, 10, 11 & especailly 12 since it deals with the original topic. lmao

Earlene the barefooted UMO AKA 9th grade economist

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Permalink Reply by ELLIS HUGH on October 12, 2009 at 6:48

What is considered top dollar in the Barnett Shale?

Thanks.

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Permalink Reply by E & E on October 12, 2009 at 7:15

December 10, 2007
Barnett Shale at $23,511/acre from XTO Energy. XTO's offer, along with a 26 percent royalty, outbid Chesapeake Energy's bid of $11,888/acre and 25 percent.

August 5, 2008:
Lake Worth signing bonus: $30,000/acre; Royalty: 25.5%

Notice that gas was @ $7-$9.......not $14

Earlene the barefooted UMO

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Permalink Reply by Grillin' - MmmMmm on October 12, 2009 at 11:16

This means that this land had a high value to someone. Doesn't set a "market" price for everything else. Could be a small piece or a piece that controls other activity. Don't know. A company has the right to bid whatever they want, be it low or high or in between.

I attended an industry conference in Sept 2008; things were okay; kind of optimistic but worrying a little it. Come November I'm at another conference and the world has fallen apart. Companies couldn't get loans, were having existing loan covenants challenged, etc.

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Permalink Reply by Grillin' - MmmMmm on October 12, 2009 at 7:23

Its obvious that you and I won't reach agreement on this issue. We are using the same graphs/plots and arriving at completely different conclusions so we'll have to agree to disagree. I won't be able to convince you and your argument certainly hasn't swayed my thinking any at all.

#12: Somewhere up the line I mentioned a couple of cases where I thought the companies should have paid. But if you and I agree verbally to go and sign a contract, but the contract is never executed and the world changes, sorry, I'm not seeing anyone honor that. The folks who got checks but there were minor errors and sent them back for correction, they should get paid!

Lawyers can be hired, no problem. But the way this particular set of "lawyers" are going about it shouts lawsuit abuse. Multimillion dollare class action suit lawyer taking up a $5000 claim? C'mon. He's not in it for that! And the discovery they've requested? Pure fishing, buddy! That's what I don't like. Using a $5000 claim to ask for mountains and mountains of papers hoping to latch a hold of a big pay day. How about if they lose, they reimburse the companies for all of the time and money they had to spend dealing with that hair ball discovery request?

Hedges: the DNR says you will get paid what the price is at the nearest market price. And that's what is being done. These hedges are not related to the phyiscal gas being produced in the HS. They are financial contracts. These companies could deliver gas from anywhere in the U.S. to satisfy these contracts. So no, there is nothing unfair about the landowner getting the price paid in North Louisiana and the gas company getting paid something different based on their hedging/trading. Sorry, that's just how this business is done.

#1 adn #3: The price at the time of leasing isn't near as important as the direction of the curve. both have an impact but if I'm betting on a rising tide, I'm going to be more willing to pay top dollar. If things are falling, I'm paying less.

#4: prices paid for leases cannot be calculated based on a proportion of gas prices to highs. If gas was $8 when a lease was bought for $20,000, when prices are at $4, you won't get $10,000. Just not the way this is done. This is a market that is not linear; its extremely fluid and very elastic. It goes all over the place, both UP and DOWN, but never at a set proportion to other variables.

#5: if you don't think that spike in gas prices had nothing to do with the high prices paid for leases, then we are kind of flaying around here aimlessly. We aren't on the same wavelength.

#6: I think I agree with you on that one. They stopped leasing because they already had too much land under lease than they could reasonably ever drill under the terms of the leases. Why? because prices were down, net cashflow was severely reduced and they had to reduce the amount of money they were spending. Again, are you saying it was evil for them to stop leasing "just" because they couldn't drill up all they already had under lease? Are you really trying to say that a company that stops buying things because it can't use them all up is evil? Should I buy more milk when I have 50 gallons in the frig and I'll never drink it all before it expires and goes bad?

#8: So what? I addressed this issue in original post. Tax deductible or even a credit doesn't solve near-term cashflow problems. You get the deduction on your taxes to be filed the NEXT YEAR! That doesn't pay the bills this year!!!

#10: problem with that whole point relates back to #6. They have so much under lease now that they won't be able to drill all of it, regardless of the price. So why keep paying top dollar for more? And if you can guarantee that the price is going to go up, then you may want to get into some hedging and futures action! People in late 2007 and early 2008 were saying it would stay above $8 for a long time, too! Then it went below $3!!!!!!!

#11: Have I gone crazy? Actually, I was going to ask you the same thing. My training and experience in engineering, management and economics as well as risk analysis and probability theory tell me I'm right. I believe the judge in this case will support this as well and throw these lawyers out of the building. My hope is they land on their fat wallets and bruise their butts! I also wish that some of the poor folks being used by these guys would get a little something out of this, but I'm guessing they won't.


"O&G is uncertainty up until the drillbit hits the dirt. They live on uncertainty. Isn't all business dealt under uncertainty?" Yes sir it is. And these companies pay people a lot of money to MANAGE that uncertainty. One way to do that is to stop paying sky high prices for land leases when a) the business cycle sucks, b) you have more land than you can possibly drill and c) your debt and cashflow are getting sideways! But that's business.

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Permalink Reply by Grillin' - MmmMmm on October 13, 2009 at 1:43

I don't mind helping those who deserve it! I just don't like the way Pres. Obama is trying to go about it! Hey, I was poor once! But never saw a gov't check or handout. Just a lot of working ours by my Father and lots of jobs for myself during school.

And I think its white face, but then I guess I'm a racists again! Like your picture as well.

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