Replies to This Discussion

Permalink Reply by Joe Dyer on January 25, 2009 at 10:47

I got my offer from Matador on 1-9-09, They offered a no surface lease for 3 years, sec.10-19N-R15W. They offered me 4,000 acre and 2000 up front W/25%. They Are drilling all around me. I have rest of land leased to CHSPK Made back in August. Quite a bit more $$$$$$

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Permalink Reply by Bobi Carr ("parker") on January 25, 2009 at 11:06

Hi Joe,

Could you elaborate? I'm sorry I don't understand. Did they offer $4000 per acre of $2000 per acre?

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Permalink Reply by david on January 25, 2009 at 12:21

Let's get all of this land leased so they can focus their money and time and energy on drilling! I was told by a driller last March that leasing for 4k an acre would be a dream come true. I leased in August for 15k an acre. Due to a lack of greed, and recognizing the true money is underground, I did not hold out for the 22k an acre a family memeber was getting for land 20 miles away. I am thankful for that now, because while that relative was trying to get Chspk to honor their draft, I had cashed my Chspk check and was living in my new house. The point is, that greed and unrealistic expectations have caused this problem. While we are sitting on the street corner holding our hands out for one dollar bills, there is a pot of gold under us that nobody can afford to recover because they are handing out all of their money on street corners! I had no idea that Chspk was borrowing money to pay these leases. I really thought they were spending cash reserves from previous drilling. It was all a house of cards, waiting to collapse. (think Bernie Madoff) It has collapsed, and now things are back to where they should have been all along. Get a good lease, and that will pay off in the future for you and your family. Let go of the idea that there will be 20k bonus money anytime soon. That may come with renewals, but not now. Waiting for it will delay the real payoff!

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Permalink Reply by Two Dogs, Pirate on January 25, 2009 at 12:34

So you think that $15,000 per acre would be a fair price or $4,000?

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Permalink Reply by Caiman on January 26, 2009 at 7:33

I was just looking at a 1099 from Buffco Production in east texas (a lease I inherited a few years ago) paid a whopping 186.98 for 2008.I got the rights back for my bienville Prop. but I am really gonna miss that $1.36 per quarter.For a while those cheaks went to my sisters office.They were not worth the stamp and envelope to forward on so when we were togeather and the subject came up she would reach in her purse and get her Oil&Gas barron brother a ten dollar bill,I was good for anouther year.I can attest to how bad (two generations ago) oil & gas took advantage of the non informed although I wasn't around then maybe $5.44 and $186.98 a year was a good lease.

Happy negotiating Caiman

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Permalink Reply by Caiman on January 26, 2009 at 7:49

I can add a little. I didn't let her burn me that bad.Back then $10 a year put me ahead.The 08 gas boom sent that one lease to the big 186,I can visualize some guy out in the field pulling and pushing on a manual pump handle saying to himself (must get more production gas high!)

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Permalink Reply by RAY on January 26, 2009 at 8:15

up front money is REAL ! , royalties are IFS ?

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Permalink Reply by Dion Warr, CPL on January 29, 2009 at 5:55

Msfva:

A horizontal completion at IP of 15mmcfd is expected to have a EUR of approximately 10 bcf (more or less depending on modeling), most of this being produced within the first few years, according to industry estimates (being corroborated even within shalepros here). This translates into approximately $20K - $25K royalty paid per acre even at the low end of HS well viabilities ($5-$6/mcf).

Granted, a single vertical HS well changes the scale and economics considerably as far as monies payable to the landowner in the short term. But as to how the real productivity of the HS is going to be obtained (which is through multi-stage frac horizontals), the royalties will be where the real money is paid to the l/o / m/o.

Under the usual set of circumstances, bonus and rental payments are usually dwarfed by the royalty payments paid out of a successful well. The rampup during the first three quarters of 2008 was far from usual, however. Assembling leasehold on a section basis in non-HBP areas went from $100K-$200K per section pre-March to upwards of $6MM - $10MM per section in July - September, and royalties paid to lessors went from 3/16 - 1/5 RI to 1/4 - 27.5% over the same span. That translates to a multiple of bonus of approximately 50X-100X, and an increase in royalty stake of 30%-35%. Going forward, even though bonuses have fallen to factors of 5X-15X over pre-March, the royalty premiums from pre-March have only retreated to 6% - 12% increases. Thus, conventional wisdom still holds: royalties from successful E&P will produce more realized income to the l/o - m/o than bonus proceeds.

The exception to the rule? When a speculative play does not pan out against the anticipated payouts and profits. But when that happens, leasing just shuts down altogether as soon as the writing is on the wall.

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Permalink Reply by Taylor on January 29, 2009 at 13:31

Another thing to think about before signing a lease in this climate.....

Page 12, January 28th, 2009 Chesapeake Investor Presentation
that accompanied the announcement --Chesapeake Energy Corporation Announces Pricing of Offering of $1 Billion of Senior Notes


U.S. Gas Market – CHK’s View

Higher production levels and lower demand will crimp natural gas prices in 2009
● However, the fix is already in, rig counts are now at the lowest level since y g 4/06
● Industry depletion rate will fix supply/demand in balance by YE’09, just as the
economy likely begins to recover
● CHK sees U.S. natural gas market as oversupplied in 2009, but balanced thereafter
– CHK sees U.S. natural gas prices at Henry Hub averaging $4-7/mmcf in 2009 and $7-9 in
2010 and beyond
– Natural gas prices not likely to stay permanently low because of great success of the
“Big 4” Shale plays (Barnett, Fayetteville, Haynesville and Marcellus). Instead, it will be the
highest cost one-third of U.S. production that will set out-year natural gas prices, not the
lowest cost one-third
– CHK sees greater and greater bifurcation between the 10 or so “shale haves” of the U.S.
natural gas industry (CHK is #1 “have”, we believe) vs. the 10,000 or so “shale have-nots.”
The “shale haves” asset bases will continually improve while the “shale have-nots” asset
bases will continually degrade
– Those that missed the “Big 4” Shale land grab of 2004-08 will pay the price for decades to
come…

http://library.corporate-ir.net/library/10/104/104617/items/320499/...

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Permalink Reply by sesport on January 29, 2009 at 14:16

I wonder if CPK sees themselves through rose-colored glasses given their stock hasn't recovered as well as Petrohawk's. Maybe it was a good thing that the executives sold some of their incentive stock the day after it was given to them?

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Permalink Reply by Taylor on January 29, 2009 at 14:28

Probably. I did notice Petrohawk's stock passed up CHK on the way up.

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Permalink Reply by Antsu-in-Japan on January 30, 2009 at 4:04

Congrats David...on the fortune 2008 brought!! Since you are, by your own confession, one who lacks greed, I'm sure you're probably using some of that "well timed" bonus money to help the less fortunate in your area. Good for you...

I do find it VERY interesting, though, how holding out for $15K (instead of taking the $4,000) doesn't make YOU greedy. Not to be a mirror-mirror on any wall but who in here decided the so-called numerical cut-off point for greediness anyway?

I applaud you for taking the risk and holding out for what you thought your property was worth. Furthermore, I don't think you really need to be that concerned with what the "unleased" are doing, as they have their own families to tend to and provide for. But a word of advice: don't blow all your bonus money in one sitting. As some in here have already pointed out, it might be a while before they can focus their money, time and energy on drilling out that 75% (or maybe more!) of their interest in our land.

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