Why does the Parish get top dollar, 30% royalty and a rental clause?

Breckenridge Area T16N R15W Sec 24, Keithville

The Parish recently sold mineral lease rights in this and surrounding sections for $30,212 / acre and a 30% royalty to Theophilus Oil and Gas Land Services. It is my understanding Theophilus represents Chesapeake Energy. I do not understand why the Parish gets top dollar, a 30% royalty... plus a rental clause. Perhaps someone could explain this.

If you haven't listened to the Chesapeake - PXP jount venture conference call, you should do so...


The wells to date in the Haynesville are referred to as Triple X monsters... and they expect this find to be much larger than the Barnett.

A section is 640 acres (1 mile X 1 mile). Several subdivisions and Grawood Baptist Church are within Section 24. There are pasture and forest lands to the North, Northeast and Southeast of Section 24. It is my understanding this area is highly desired by Chesapeake... maps show it as a core area and also show the Haynesville shale depth @ 200' or more.

Thanks for any insights you can provide.

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Basically the state and parish have large blocks of land and the companies are able to drill on them d/t no homes, etc. There is a lot of competition bidding for the state and parish lands and the bids are sealed so no company knows what the other is bidding. That fosters the high bids. I understood that Theophilus was representing Petrohawk but I could be mistaken.

Correct me if I am wrong, but I don't think this land that the parish is receiving 30k/30% on is for large blocks of land.

It sounded like 600 acres of roads, etc., which would have to be the most unattractive land for an operator...going through several sections, possibly townships, no drilling, scattered, etc. Some of the land might even be in sections that they will never get enough acreage to drill.

I would love for someone that knows to clarify exactly what kind of land this was that the bids were that high, but roads can't be that attractive.

I did read in the Times that Petrohawk was who won the bid.
I don't want to put words in Kassi's mouth but I think that she was talking about the land in DeSoto parish. Most of the large parcels in that bid was for land around the DeSoto airport, which is mostly fields.
That is my understanding, also, about DeSoto parish, but I am still curious about the land in Caddo, because if it is random acreage as it appears to be, then that means that Petrohawk sees the value in Caddo Parish of small, random pieces of land to be 30k/30%.

Any other info about Caddo's land would be great, especially from Kassi, who may have more knowledge of exactly what land comprised this 600 acres.
My question is,If they had opened bids and allowed one more round of bidding from each company , How high would they have actually gone?
Yes, some of the bids were for roadways, others were for pieces of land that could be drilled on. The amount of land, the sealed bid process and the fact that the state and parishes have the resources to go into things knowing the actual value all work in tandem to get the state/parishes much better rates than the typical land owner. The land owners are in a hurry and typically are undereducated and underrepresented regarding the ins and out of the O&G business so they tend to sign for less. Look at the last holdouts in the Barnett Shale. Those folks are getting the environmental protections they want and great terms for their lease. They got educated, organized large areas and held out until the O&G companies were willing to deal with them on the same level they would deal with another company or with the government. If all of these groups that are forming would ask for the land and quality of life protections and would insist on being dealt with fairly you would see them getting better deals as well.
Thanks for the information, Kassi. If I understand you right, then Petrohawk showed their hand on what they thought random land was worth, and if a neighborhood was organized and brought 600 acres to the table, then theoretically, they should be able to get the same amount from Petrohawk.
In a way yes. Why would these companies be bidding so much to the state/parish and paying each other so much for joint ventures if they did not know they would be repaid ten fold from productio? These are very smart business folks, they do not gamble with that kind of money on a maybe.
For sure an association with a LARGE block of land that was in a good part of the shale play would have a much better shot of getting an equitable deal.
Please remember though, there is more to it than money. The environmental impact, water resource protection and quality of life issues are important as well. I think a lot of people, if properly educated, would gladly take a little less on the bonus payment in order to ensure clauses were in place in the lease to protect their environment.
How many assotiations are out there with more than 100 acres? If several of them banded together or even if all of them were asking for the same things and sticking to their guns wouldn't that turn the tide even more than what has already taken place?
Theophilus Oil and Gas Land Services represented Petrohawk in Desoto Parish bids... that was revealed in the TIMES. It was not revealed (to my knowledge) which company Theophilus represented in Caddo Parish.

FWIW, note also the bids and the royalty rates for the 2 parishes were not the same.
Hello Friend , Let me take a shot at this one. I believe there are 2 main reasons.

1) These were sealed bids.One company had no idea what the other bid would be. This of course caused a more reasonable "true value" type of bid to emerge. They were forced to show their hand! That 30 % royalty kinda showed quite a bit too ! Be sure and remind them of this on your next encounter!

2) The other main reason people are not seeing these types of bids in their neighborhoods is because you actually believe these landmen.No one has made O&G's pay them yet ! These guy's are graduates of the world series of poker championships and on top of that I believe they truely enjoy manipulating people.Kind of like these millionaire celebrity shoplifters.There is a post on this site that shows an offer difference of $17,000 and these people are about 4 miles from each other.They will not pay any more then you make them. I say make them, because that is exactly what happens when someone gets a better offer then you.They knew that their land was worth far more then the offer, so they turned it down. When the landman say's thats all you are going to get, he say's ....... see ya' later.

According to the news , the good parcels of land with prospective drill sites were not included in these bids.Those upcoming bids may be interesting from a strategy stand point.With rentals I believe that undrilled acre in three years time would bring $60,000. Correct me if I am wrong as I don't fully understand the rental aspect of this lease.
The landmen will tell us that the reason we do not get the larger bonus offers and rentals is because of the size of the parcels of land involved in these leases. But this month, a small parcel of 15.29 acres brought $30,212 per acre and last month, another small parcel of 19 acres brought one of the highest bids of $17,000 per acre. I just wish we could receive rentals.


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