Natural gas drilling companies upping ante on land leases
Natural gas drilling companies upping ante on land leases
Wed. September 16, 2009; Posted: 04:50 AM
Sep 16, 2009 (The Times-Tribune - McClatchy-Tribune Information Services via COMTEX) -- CHK | Quote | Chart | News | PowerRating -- Hours after failing to land a lease with 600 Friendsville Group property owners, Chesapeake Energy sought to lure landowners away from the company that did.
Fortuna Energy Inc. of Horseheads, N.Y., made a $165 million bid to become a major player in the Marcellus Shale, reaching an agreement with the Friendsville Group that would pay property owners $5,500 per acre and 20 percent royalties, perhaps the most lucrative Marcellus natural gas lease to date. After the group's negotiating committee accepted Fortuna's offer in Choconut, Chesapeake made a blanket offer of $5,750 per acre with the same 20 percent royalty. Chesapeake is also willing to forgo a renewal option in the Fortuna lease, so if land isn't drilled in five years, property owners are free to lease their land to someone else.
Group members have the right to sign with anyone.
Fortuna general counsel Mark Scheuerman declined to comment on Chesapeake's offer. But he has said he's confident that the Friendsville committee's endorsement and the lease terms will deliver the minimum 20,000 acres Fortuna wants as a contingency of the lease.
Fortuna has some advantages, and more reason to pay a premium to get into the Marcellus than western-based companies. Fortuna, a subsidiary of the Alberta, Canada-based Talisman Inc., is based just across the state border. The company resisted making earlier forays into the region, holding onto its capital and waiting for the right deal, and better proof of the productivity of Marcellus wells. A moratorium on drilling in New York state added to Fortuna's eagerness for a deal across the border.
The company, with 20 active wells in Tioga and Bradford counties, expects to have 40 by the end of 2009 and plans for 100 more in 2010. Fortuna is the largest natural gas producer in New York.
The flurry of offers has created confusion among some in Friendsville Group, said Scranton environmental and energy attorney Steve Saunders, who has clients within the group asking him to review the competing offers.
"Each individual has to review the competing offers," said the Friendsville Group's attorney, C. Warren Trainor, who helped write the Fortuna lease.
Low natural gas prices have done little to dampen exploration companies' enthusiasm for Marcellus Shale or drop lease prices. In the early days of the economic collapse, lease rates fell to $500 per acre, down from about $2,500 per acre.
"They've seen the production rates from the Dimock wells that have been on line for years," Mr. Saunders said. "The numbers are high, decline rates are low and the shale not as hard to get through."
Contact the writer: dfalchek@timesshamrock.com
Wed. September 16, 2009; Posted: 04:50 AM
Sep 16, 2009 (The Times-Tribune - McClatchy-Tribune Information Services via COMTEX) -- CHK | Quote | Chart | News | PowerRating -- Hours after failing to land a lease with 600 Friendsville Group property owners, Chesapeake Energy sought to lure landowners away from the company that did.
Fortuna Energy Inc. of Horseheads, N.Y., made a $165 million bid to become a major player in the Marcellus Shale, reaching an agreement with the Friendsville Group that would pay property owners $5,500 per acre and 20 percent royalties, perhaps the most lucrative Marcellus natural gas lease to date. After the group's negotiating committee accepted Fortuna's offer in Choconut, Chesapeake made a blanket offer of $5,750 per acre with the same 20 percent royalty. Chesapeake is also willing to forgo a renewal option in the Fortuna lease, so if land isn't drilled in five years, property owners are free to lease their land to someone else.
Group members have the right to sign with anyone.
Fortuna general counsel Mark Scheuerman declined to comment on Chesapeake's offer. But he has said he's confident that the Friendsville committee's endorsement and the lease terms will deliver the minimum 20,000 acres Fortuna wants as a contingency of the lease.
Fortuna has some advantages, and more reason to pay a premium to get into the Marcellus than western-based companies. Fortuna, a subsidiary of the Alberta, Canada-based Talisman Inc., is based just across the state border. The company resisted making earlier forays into the region, holding onto its capital and waiting for the right deal, and better proof of the productivity of Marcellus wells. A moratorium on drilling in New York state added to Fortuna's eagerness for a deal across the border.
The company, with 20 active wells in Tioga and Bradford counties, expects to have 40 by the end of 2009 and plans for 100 more in 2010. Fortuna is the largest natural gas producer in New York.
The flurry of offers has created confusion among some in Friendsville Group, said Scranton environmental and energy attorney Steve Saunders, who has clients within the group asking him to review the competing offers.
"Each individual has to review the competing offers," said the Friendsville Group's attorney, C. Warren Trainor, who helped write the Fortuna lease.
Low natural gas prices have done little to dampen exploration companies' enthusiasm for Marcellus Shale or drop lease prices. In the early days of the economic collapse, lease rates fell to $500 per acre, down from about $2,500 per acre.
"They've seen the production rates from the Dimock wells that have been on line for years," Mr. Saunders said. "The numbers are high, decline rates are low and the shale not as hard to get through."
Contact the writer: dfalchek@timesshamrock.com
Views: 118
Replies to This Discussion
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Permalink Reply by Catfish on
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This should give the landowner groups around here some encouragement. Has anyone heard of any recent negotiations going on between our local groups and O&G?
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Permalink Reply by Laman_71106 on
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The Forbing group just recently got $5000 + 25% for S07 16N 13W from RRO&G for Petrohawk
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Permalink Reply by Catfish on
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Thats good news. I have a friend in the east 80 group and he hasn't heard anything even though chk is drilling 2 miles from his land.
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Permalink Reply by KAYBABY on
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I live in Shreveport 8-16N-13W, Ellerbe Road Estates, I got $5000 / 25% very recently
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no just took financial terms they offered PLUS LOTS AND LOTS OF SPECIAL TERMS
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Permalink Reply by David on
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In our leases lately, we have been getting the same range of money (~$5000/acre) but we have gotten EXCO and others to give us a 25% royalty until payout and then 27.5% after payout.
Check with your O&G attorney about getting something like this, even if you give up a bit upfront on the $5000. The amount of money on the extra 2.5% is worth it.
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Permalink Reply by Skip Peel - Mineral Consultant on -
The 25%/27.5% royalty mentioned is quite rare. The few HA leases that I have reviewed containing this stepped royalty clause covered significantly large acreage tract(s) in proven areas of the Play. It never hurts to ask but few energy companies would consider granting such a royalty.
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Permalink Reply by kittycatmama on
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We are in north Desoto and got $5000 an ac. Aug. 30
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Permalink Reply by Henry on
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David,
Good for you in getting a royalty bump up. Another way to do this that avoids having to track the well costs is to write in the lease that the royalty goes to 27.5% after the well produces a certain number of mcfe of gas. This ought to be far easier to track than well costs, and would make it easier on the landowner to know when the royalty bump up occurs.
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Permalink Reply by ELLIS HUGH on
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I saw a lease today in which a mineral owner received a 25.25% royalty.
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