Replies to This Discussion

Permalink Reply by ETOilman on October 12, 2009 at 8:29

As my experience tells me, there have been AMI agreements between two (or more) competing companies. These agreements are to allow one company to manage the area of mutual interest and joint billing is created for the costs between the companies. Does this help to contain the costs of the leasing? Yes it does. It keeps the competing companies from driving up the cost of the leases. It is IMHO, a prudent business practice.

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Permalink Reply by Josh on October 12, 2009 at 9:01

It seems as though some people think that it is a good idea for land owners/mineral owners to band together to get better bonuses and royalty percentages for themselves, but it is to be labeled "conspiracy" if O&G companies were to do the same. As an earlier poster in this discussion stated: "It seems to me that some people are forgetting the basic rules of capitalism/business" and I would add to that basic economic principles. Whether or not something like this is going on (which is an almost silly notion to begin with), good business practices are good business practices, no matter who is implimenting them.

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Permalink Reply by Les Bamburg on October 12, 2009 at 9:11

Josh, it is illegal for companies to engage such a practice. Any decision regarding bonus levels by an individual company must be arrived at independent of other companies.

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Permalink Reply by Josh on October 12, 2009 at 9:30

Les, I appreciate you chiming in to educate me on this. I am well aware of the legality of such practices. My post was mostly meant to be sarcastic, with a little bit of "I can't believe someone who would go to the effort of making page long arguments doesn't understand basic economics" thrown in the pot. I nearly always watch from the sidelines of discussions rather than participating but I have grown tired lately of reading/hearing people complaining about not getting what they believe is their fair share. As a nation there is entirely too much of that going on, no matter the industry.

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Permalink Reply by Les Bamburg on October 14, 2009 at 10:02

Josh, thanks for the additional comment.

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Permalink Reply by Mark on October 12, 2009 at 10:00

Acreage prices were out of line to begin with, in the Barnett and Haymesville/Bossier, and needed a major correction. The fall in the price of gas (it also need a correction) caused that needed correction. It is my opinion that these suits have no merit and there was no conspiricy between companies. Each company can look at their own economics and there is no need to talk with any other company to make this decision.

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Permalink Reply by GoRicky on October 12, 2009 at 15:14

Let's see - how about this -- if the price of gas temporarily goes up and producers spend more on leases (or comes back to former lease signers) and then the price of gas goes back down for a long time, should the lease signers then return some of the money to the producers? Could the organizing and collusion between the individual lot owners be construed as "scheming", "circumventing the natural market forces", "conspiratorical", creating a "common denominator"? What we really need is for landowners to just get together, pool their monies and drill their own wells. Then they have nobody to blame but themselves.

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Permalink Reply by lanadan Ds3 on October 13, 2009 at 4:20

I think this is an intresting comment from Aubrey McClendon from the Chesapeake Energy Corporation Q3 2008 Earnings Call Transcript. Notice he says the VALUE remains very attractive to us. Lease prices have gone down because mineral owners have fallen for scare tactics (this offer is only good untill...) and accepted lower amounts.

Brian Singer - Goldman Sachs
Can you give us an update on leasehold values in The Barnet, Marcellus and Haynesville? Obviously, as you have mentioned, you're probably doing a little bit less activity than you were, but can you comment on the impact that current markets have had in terms of acreage value today?
Aubrey McClendon
Sure, would be happy to. Brian, we have seen a dramatic reduction in leasehold values in the Haynesville and in The Barnet. I guess, I shouldn’t use the word values, I should say costs, because the values remain very attractive to us, but in the Barnet, I think, we led the way by saying that in this gas price environment it no longer made sense to pay $15,000, $20,000, $25,000 an acre. And we are on public record in Fort Worth as not being willing to pay more than $5,000 per net acre there. And, I think, the rest of the industry has followed suit.
And, while we are still acting independently and competitively of each other, it is an absolute truth that leasehold values have been dramatically pushed down. Not values, sorry our leasehold costs, acquisition costs have dramatically have pushed down in The Barnet. That is also true in the Haynesville. And, I think, we have had some leadership there as well"
Chesapeake Energy Corporation Q3 2008 Earnings Call Transcript

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Permalink Reply by Grillin' - MmmMmm on October 13, 2009 at 8:42

Yeah. Its like saying the value of that Mercedes is still $50,000 but I can't afford to pay more than $20,000 cuz my income is much lower now! So one bankrupt dealer sold me one for $20,000. Then my friend Bob Simpson heard about it, and he went and offered the guy $20,000 and the guy sold it to him for $20,000 too.

Its called capital discipline. Know how much you are willing to pay and don't stray over that amount. good companies like Exxon have the discipline. Poor companies with poor balance sheets don't have it.

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Permalink Reply by sesport on October 14, 2009 at 16:50

Okay, I'm going to knock you over with a feather this time, but I'm agreeing with that "discipline model." However, I'm agreeing with the model as it would apply to mineral owners. Do you think they could be "disciplined" enough to wait for supply (gas in storage) to drop, wait until demand once again drives up the price due to less supply, and wait for the return of the value that the companies set originally with those high signing bonuses? After all, it is still the same gas, still going to be needed by energy & industrial sectors, maybe at in increased demand level (in the future). Go, Energy Legislation!!! :0)

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Permalink Reply by Grillin' - MmmMmm on October 15, 2009 at 1:29

Discipline works both ways, so yes. If the landowners can remain disciplined and hold out, then more power to them. No one puts a gun to anyone's head and forces them to lease at a given price. If a landowner doesn't like the price, or the royalty or other terms, then they should either negotiate or walk away. I believe Jay mentioned earlier that folks would be ill-advised to lease today under the given economic environment. I would agree, unless someone needed the money in the very short term. Putting money in the bank to draw 0.5% interest isn't a great idea, so wait until the market turns.

Now, that's not a guarantee that lease costs will be going up, but they probably will go up. But always be ready to be an UMI owner if you stick to your guns and have a small acreage position.

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Permalink Reply by lanadan Ds3 on October 15, 2009 at 2:29

Grillin, (etc),

"But always be ready to be an UMI owner if you stick to your guns and have A SMALL ACREAGE POSITION."

Please explain/expound upon what you meant by the last part of your statement (as capped above).

Thanks !

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