Replies to This Discussion

Permalink Reply by Neil Cary on August 29, 2017 at 10:21

My family has some property in northern St Landry parish, leased to Sentry / EOG.  We have also received a solicitation to purchase mineral rights.  I find it interesting that they are willing to gamble when our property is over 10 miles from the Eagle Ranch well.

Permalink Reply by Neil Cary on August 29, 2017 at 10:25

Also, I heard that in addition to the Eagle Ranch 14H-1 Sentry Energy has permitted several other locations.  I have not been able to find any of these on Sonris but I am not a frequent user so maybe I missed them?  Does anyone have any info on this?

Permalink Reply by Skip Peel - Mineral Consultant on August 29, 2017 at 10:27

Mineral buyers "gamble" quite often and discount their dollar offers accordingly.  If they can buy minerals at a sufficiently low price, they don't have to get every purchase right.  They just have to get enough of their purchases right to make a profit.  Most initial letters or phone calls do not include an offer amount, they are simply trying to identify those mineral owners interested in a sale.  It's called fishing for a willing seller.

Eagles Ranch 14H is the only live permit to drill currently held by Sentry.

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Permalink Reply by Neil Cary on August 29, 2017 at 23:19

Thanks Skip.  We were offered a $/acre but it was just by phone / email not a formal written offer, so I'm suspicious.  I'm relatively new to this forum and not sure about the ground rules - is it acceptable to post company names / $ amounts for the benefit of others?

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Permalink Reply by Skip Peel - Mineral Consultant on August 30, 2017 at 2:19

You're welcome, Neil.  Site rules do not prohibit naming companies nor discussion of their offers.  It is against the rules to post telephone numbers and email addresses.  If you are receiving an offer chances are good that your neighbors are also.  Sharing that information places mineral owners in a better negotiating position should they have an interest in a sale of their mineral rights.

To get started with some fundamentals, here is a link to my blog post on leasing and selling minerals.  The last entries cover sales.

http://gohaynesvilleshale.com/profiles/blogs/fundamentals-of-minera...

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Permalink Reply by Skip Peel - Mineral Consultant on August 30, 2017 at 2:21

EOG Eagles Ranch 14H-1 - FRAC CREW ON LOCATION

Posted: 29 Aug 2017 09:41 AM PDT

Frac crews have arrived this morning on the EOG Eagles Ranch 14H-1. It's very likely that it will be many weeks before an initial potential is posted on SONRIS. Be sure to "filter" through what you hear. Remember, rumors of 2200 bopd started BEFORE the frac job even started. Also, it will take six months to get comfort on the initial decline curve.  The presence of natural fractures in the Austin Chalk can create some chaos and unpredictability

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Permalink Reply by Neil Cary on August 30, 2017 at 5:44

Thanks Skip.  For the benefit of our neighbors and others in the same situation I have written the below, it is long but hopefully will help in the decision.  As background, I have worked upstream oil & gas for almost 40 years reservoir/completions/production so I am very familiar with those operations and associated economics, but haven't been involved with land lease negotiations on a personal level before.  The land is actually owned by my mother-in-law and her daughters - since I am the only one in the family with oil/gas experience they look to me and I better get it right or I will be in trouble.  So they ask me "should we take the offer or hold out for the big money when they drill a well on our land?"  To answer that we should do a probability analysis on just what "big money" means.  

The offer was made by Great Southern Minerals for $700/acre per net mineral acre, for every acre currently leased to Sentry.  In total they have about 800 acres in 4 separate tracts ranging from 75 to 355 acres.  Assuming that they are a legitimate outfit and the deal goes through then the probability is 100% that the ladies would get 800 acres x 700 $/acre = $560,000 before taxes, very nice.  The properties range in distance from 6 miles to 14 miles from the Eagle Range 14H-1.  So in practical terms it is highly unlikely an extension of North Bayou Jack field would go that far - any wells close to their land would be on a separate structure and there have been no historical wells to any reservoir on their land.  The closest was the Palmetto Gas Field which produced from the Wilcox years ago.  I understand that they have leased 100,000+ acres and we all know that they won't drill it all up, so without access to EOG's geology there is no basis to say that "our" land has any better chance for a future Austin Chalk completion than any other land in the lease area.  So I can assign no better than a 30% chance that our land will be included in any future productive unit.

Given the very large 1440 acre units, at best our largest 355 acre parcel would have 355/1440 = 25% of the unit.  At worst it would be 35/1440 = 2.4% of the unit.  The average production per well for the three nearby Austin Chalk fields (Masters Creek, N. Bayou Jack and Cheneyville W. is about 410 MBOE.  The EOG wells may yield more but who knows for now?  Given a 20% royalty interest, $50/bbl oil and a 30% probability of success, the risked value of the future royalty interest income from the property ranges from $29,500 to $307,500, all before taxes.   If they are REALLY lucky and get two of the properties included in a unit, then the payout could double to maybe $600k.   Also if the ultimate recovery per well increases, oil goes back up to $100/bbl etc etc.   It comes down to taking the bird in the hand or rolling the dice if you feel really lucky.  But it's at least a good problem to have this morning compared to the poor folks in Texas.

Thanks for the warning Jay.  I agree these guys may just be doing a bait & switch and trying to tie up acreage until the 14H-1 comes on production.

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Permalink Reply by Skip Peel - Mineral Consultant on August 30, 2017 at 6:01

You are thinking along the right lines, Neil.  I would also figure EOG past performance into the equation and I doubt they would be testing the Austin Chalk in your area if they didn't think that, if productive, the economic area would be significant.  Also the performance of wells and fields in reasonable proximity are of limited comparative value unless they are relatively recent, modern variations of horizontal wells.  Finally, the choice doesn't have to be that of a bird in the hand considering that your family owns a significant acreage interest.  You can always choose to sell a fraction of the whole.  Many large land owners will sell half and keep half.  Traditionally O&G deals have often been done on eighths.  So you could sell 5/8 and keep 3/8  or visa versa.  That way if there is a particular thing to be accomplished from a dollar prospective, it can be achieved without a total liquidation.  If you accomplish something of value through a sale then you are a winner regardless of whether you ever get a well or significant production.  I suggest that you consult with a tax professional regarding the benefits of Long Term Capital Gains.  Any mineral interest owned for longer than 366 days will qualify.  Good luck.

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Permalink Reply by Neil Cary on August 30, 2017 at 9:45

True, but Chesapeake, Anadarko etc also thought they had it figured out.  I would love to see some 1 MMBOE + ultimate recovery wells in that area.  If the 14H-1 bombs I can get ready for an earful of "we should have taken the money".   

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Permalink Reply by Madman on August 30, 2017 at 11:34

My property is approximately a mile south of the current well (according to one of the earlier comments).  We were part of the Dominique 27 with a tiny 53 acre position.  At that time we were offered $26,000 for 2.5% of our rights.  I most recently received an offer for $27,000 for 50% of the future mineral rights.  Not taking it. Just sharing.  I believe the offer was from Monroe Mineral. I also received a letter from Great Southern.  As stated by someone earlier, I wish I had taken the offer from the Anadarko days, as the Dominique pumped for less than a month.  

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Permalink Reply by Skip Peel - Mineral Consultant on September 7, 2017 at 1:12

EOG makes a play in oil-rich Austin Chalk

BY TED GRIGGS |   Sep 6, 2017 - 11:18 am

EOG Resources has quietly leased more than 130,000 acres in Avoyelles, St. Landry and Pointe Coupee parishes and has begun fracking its first well in the Louisiana section of the oil-rich Austin Chalk.

The formation stretches around 600 miles from the Mexico border through Texas and across the middle of Louisiana. But it has been 20 years since the Louisiana piece of the formation has seen much in the way of leasing activity. EOG's first well, in Avoyelles Parish, was drilled 16,700 feet deep with a horizontal section a little over 5,000 feet long.

Rumors are already running rampant about how many wells the company plans to drill and how much the first well is producing — something that happened even before the well was drilled, said Kirk Barrell, president of New Orleans-based Amelia Resources. But it will be weeks before the initial production numbers are available and months before EOG is comfortable with the wells' decline curve, the method oil producers use to estimate reserves and predict production.

"It's way too early to speculate, but I'd say the industry shares my confidence in EOG. They're so good at what they do. If anybody can do it, they're the ones," Barrell said. "This is a blessing and gift to Louisiana to have them show up, without question."

EOG officials could not be reached for comment.

Interestingly, the Eagles 14H-1 is on EOG's shallowest acreage. The company has leases where the chalk's oil lies 19,000 feet below ground, Barrell said. 

In addition, the Austin Chalk lies 800 feet to 1,200 feet above the Tuscaloosa Marine Shale, he said. Success in the Austin Chalk could possibly rejuvenate activity in the TMS.

Activity in the Tuscaloosa Marine Shale, the oil-rich formation that straddles Louisiana's midsection, dried up when oil prices plummeted three years ago. At the time, the TMS wells were the most expensive in the country at $10 million to $11 million.

Black gold has turned to red ink for major players in the once promising Tuscaloosa Marine Shale.

The cost of the wells and the issues that arise from drilling so deep and under such high pressures are the main obstacles to EOG developing its Louisiana Austin Chalk acreage, said Barrell, who is also the author of the Tuscaloosa Trend blog. His company is assembling acreage in the formation.

However, EOG has been testing its acreage in Texas over the last year, and the results appear promising. In the first half of the year, EOG completed 14 wells in the Texas portion of the Austin Chalk. The 30-day initial production rates for those wells averaged more than the equivalent of more than 2,600 barrels of oil.

Barrel described the wells in Karnes County as "amazing," with some initially testing at 9,000 barrels per day. 

In a blog post on Seeking Alpha, analyst Nikolai Gouliaev estimated the initial investment for EOG's recent Texas Chalk wells at $4.6 million, and the return on investment at more than 200 percent 

 

Permalink Reply by Madman on September 8, 2017 at 5:16

Not sure if your reply was directed towards me, but I did not say I was selling. I was sharing news. And FYI, I heard the same thing about Anadarko back in 2010.  

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