Replies to This Discussion

Permalink Reply by Spring Branch,mineral owner on January 13, 2009 at 19:45

Ask for $_________ and 25 % royalty to put the ball back in his court. Is the drilling permit for a horizontal?

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Permalink Reply by M. Mcwilliams on January 14, 2009 at 1:33

Spring Branch, I'm one of the land/mineral owners (2 ac.) the permit is for a Cotton Valley well, but the landman is telling us that the company plans to drill a Haynesville Shale well. Can't really get a good answer out of him; when I pointed out that it was not permitted for that, he really didn't have anything to say.

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Permalink Reply by Snake Stewart on January 13, 2009 at 18:25

If all the O&G's operate in this manner then its no wonder they are in the mess they are in. If I am fortunate enough to have leased for $20,000 an acre, do you really think that I will settle for less the next round ? Why ? Because I feel guilty about getting to the O&G's ? Not hardly. If you got me for $350 the first time, there is still a chance that you could get me again. Maybe not for the $350, but you could still try and sweat me about the downturn in the economy. Even if you had to spend $10,000 on average, you are still only at $6,824,000 for the section.Thats a free well, so to speak.That makes no sense economically.

$20,000 per acre X 640 = $12,800,000
$350 per acre X 640 = $224,000

I hope you guy's stay out of the accounting departments! (LOL)

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Permalink Reply by Dion Warr, CPL on January 13, 2009 at 8:53

Msfva:

As a corollary to this, some l/o's just can't understand how an O&G company can spend the amount of money that they have spent in a section already and not just pay what they are asking to get the area sewn up to drill.

Answer: what happened before does not matter, and O&G companies do not get personally invested in their prospect areas. They will not throw good money after bad just because 'they've spent so much already'. What can the O&G company afford to pay now (on current budget) is the operative question. The companies that are in this for the longer timelines will evaluate on (1) expiration dates of leasehold in the area, (2) proximity to their 'core area(s)', and (3) rig availability.

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Permalink Reply by Dion Warr, CPL on January 13, 2009 at 11:49

Earl:

So don't do that. The lease, the bonus, the royalty, the form, the terms: it all comes down to what both the lessor and lessee will mutually agree. And if you own too much unleased mineral interest (or have other neighbors, who between all of you own too much UMI in a unit), it won't get drilled, anyway.

If you're worried about surface rights and surface use, get a no surface clause, in writing, subject to prior written consent from YOU. Do not let lessee add "such consent not to be unreasonably withheld", or something similar for them to sue over to 'force' your consent.

For most unleased owners, if it's not about the money, then it's about the fear (or the %$#@!) of being screwed over. If either one is allowed to rule one's life, it's no good. Even if one doesn't sign a lease, and the O&G Co. drills anyway, if you're worried about getting screwed, whether you're leased or not makes little difference.

IMO, if you're UMI, and the company drills anyway, you're not in the catbird seat. You're as good as a non-penalized, (yet non-operating) working interest partner, and if you're partnered with an inept driller and/or operator, one or the other can screw a well up a la '$4MM fireplace' (credit given to Jay) or $14MM horizontal gone sour and costs still climbing. Either one is going to unacceptably limit one's royalty (as a RI owner) and revenue (as a UMI or WI owner).

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Permalink Reply by Spring Branch,mineral owner on January 13, 2009 at 19:59

Except that if the numnuts operator screwsup the well and spends $17,500,000
drilling the darn thing, the person who leases is gonna get his 25% on the first dollar of revenue. Not so that unleased person who has to watch the production drop from 15 million cu ft of gas a day to 2 million cu ft of gas a day before he starts getting any revenue. Then the first month he/she gets revenue, he also gets a nice fat bill from the operator. Time I played devil's advocate again!

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Permalink Reply by Spring Branch,mineral owner on January 15, 2009 at 4:04

I would assume after payout the unleased person would start getting a bill and a check each month, not a net check.

Permalink Reply by Snake Stewart on January 13, 2009 at 17:15

Hey Earl,
How many phone calls you made to CHPK ?

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Permalink Reply by lanadan Ds3 on January 13, 2009 at 13:53

Earl,
It seems that there are those on this board that think we are all ruled by money. Maybee some of us really do wish they would just go on down the road and leave our land alone.

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Permalink Reply by Cathaus on January 13, 2009 at 16:44

Pirates are also pretty shrewd!

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Permalink Reply by Snake Stewart on January 13, 2009 at 17:22

Permalink Reply by Dion Warr
They will not throw good money after bad just because 'they've spent so much already'. What can the O&G company afford to pay now (on current budget) is the operative question.

What does that have to do with the value of someones minerals ? How were the early lease amounts bad money for O&G's ? Is the value no longer there ?

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Permalink Reply by Dion Warr, CPL on January 14, 2009 at 4:11

Snake:

Didn't you read the same Mineral Code that I read? There is NO fair market value to mineral rights; there is no right of rescission for lesion beyond moiety.

One doesn't own the oil and gas underneath their feet in LA, they own the right to capture them. If their is oil and gas potential under the ground, and it becomes economically or technically feasible to extract the oil and gas, the right to capture these minerals then has a fair market value in terms of E&P. Hence, O&G has been drilling through the HS for 40+ years, but have not evaluated it as worth a plug nickel as a viable production interval until the last couple of years, after (1) the technology advances were made, (2) results were reproducible, and (3) natural gas prices stabilized above a $5+ plateau. Before all of those events came together, the notion that the HS was 'always' worth hundreds if not thousands of dollars per acre for leasing purposes was a preposterous concept.

Landowners are traditionally paid lease bonus based on the reasonably recoverable minerals at the time, generally weighted by risk and historical production in the area. Competition sometimes drive these prices higher as ten companies competing over the same area will look to outbid each other, whereas one company or two will more or less look to 'divide the world', if they cannot succeed in driving each other out of an area. Now that the economic downturn has hit, and the initial frenzy of leasing has cooled off, these will (or should) be the fundamentals that drive the play. Since the economic factors have now heavily weighed on the larger players finances (both in E&P dollars and the ongoing ability (or inability) to raise additional capital, for them, anyway, the 'value' in terms of lease bonus is not there insofar as paying premium prices in the fairway at this time, save the occasional exceptions (core areas, well-established leaseholds, well placements imminent, etc.)

One of the experiences I've had as a landman goes like this: we were assembling a prospect in a pretty broken up area (lots of tracts). Leasing was slow going as people were asking for terms (bonus, royalty, etc.) to which our client would not agree. After significant effort, we had succeeded in leasing about 75% of the area. Some of the remaining landowners would not budge, as they 'just knew' that eventually our client would meet their terms. A well was drilled between the 'core area' (for lack of a better term) and this prospect area which showed that the 'sweet spot' which was anticipated in the area from seismic, etc. was not as sweet a spot as the client had originally thought. We were instructed to pull out of the area. The landowners were astounded. They asked "how could (Client X) spend all of this money in this area on leasing and just let it go?" The short answer was 'conditions had changed, the prospect was no longer considered economically viable at this time.'

Truthfully, the decreased bonuses in the area have nothing to do with value of someone's minerals; it has more to do with the economic realities of their E&P budgets at this time.

I'd like to comment on the other points you have raised in replies to those respective posts.

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