Replies to This Discussion

Permalink Reply by Gone Fishin on December 1, 2008 at 9:46

oglmeister

Oh, feisty aren't we. If a lease isnt signed and the mineral owner either cant be found or refuses to ratify a lease then 100% of their proceeds after cost is held in trust. Makes sense that they try really hard to get the leases signed before drilling. Or then ratified soon after. If too many wont sign or cant be found then the payout on the well may not be enough to drill there. HuH. Makes sense. Severing the minerals and royalty ? If you dont own minerals then what the hell is it that is comming out of the ground that you are agreeing to let them have 75% of and getting paid 25% of if that is what is agreed on. omg you must be a engineer.
As for the guns, you drew first. haha. jk. But seriously If cpk and devon and some others can pay $30,000. per acre and 30% royalty then there is obveously alot of money on the table. Somewhere in the neighborhood of $1,000,000. per acre according to ckp numbers. I'm not really looking for 50% royalty but just to prove the point that the upfront money is not that much when you look at the amount o&g companies stand to make on the actual sale. This is why you see them offer more bonus before they offer more royalty %. I have about 350 acres in Nfr and petrohawk play of northwest shelby county ephriam story and squire humphries a280 surveys. And another couple 30 acre tracts east of timpson. Matter of fact there is a geologist looking at our place right now. Here is my email address pend50757@mypacks.net Incase any REPUTABLE land men or o&g companies are interested. All I've ever asked for is a good reputable company with a fair offer. Till I see that I'll keep passing on the gunslingers and the used car salesmen. You're in Texas buddy we are proud of who we are and what we have. We are a different breed. So "If you dont like the way we're livin then just leave us long haired country boys alone". :)

Permalink Reply by ogmladvisor on December 1, 2008 at 14:25

Gone Fishin:

First of all, allow me to go on the record and say that I am a landman. That doesn't automatically make me a cheat and a liar, it makes me a landman...and lot's of us are actually pretty good folks. It is not my intention to give bad information to anyone here, but rather give good information to interested people that can use it. Sometimes that information is based on an opinion, but mostly it is based on common sense and the rule of law. You might not like that law, but it exists and we all have to live by it.

As mentioned previously, the situation I described was in reference to Eric's tract being placed in a unit on a non-drillsite basis, which would result in him getting paid nothing (either through bonus or royalty) if he signs no lease. He wouldn't be within a drillsite tract, for that very reason - he didn't sign. If a person has an undivided mineral interest in a tract of land, which is included in a pooled unit, but it not the drillsite tract - and he doesn't sign a lease - he stands a very good chance of never seeing a dime.

As for your misunderstanding of minerals and royalty (and the difference between the two), they can be severed with a royalty deed or similar instrument, which is what creates an NPRI. This happens all the time, and it creates a situation where one person signs an oil and gas lease, and another person actually receives the royalty. An example: if someone conveys 1/2 half of their royalty in a royalty deed, you would have that person signing the oil and gas lease (say for a 1/4 royalty interest) and actually only receiving 1/8 of the royalty (1/4 X 1/2 = 1/8), and the NPRI (Non Participating Royalty Owner) owner recieving the other half of the royalty, which would also be 1/8.

Lastly, I would like to see where you got your numbers on Chesapeake, where they claim to profit one millions dollars per acre, or even see gross income of one million dollars per acre. This is a highly inacurate statement, but dovetails nicely with some of your other incorrect statements. Based on your numbers, a 10 billion dollar E&P company would only have to drill 15 to 20 640 acre units (a fairly easy task for a 10 billion dollar company) per year in order to gross an amount equal to what the entire company is worth. Every year. Imagine how high that stock would be climbing! Or to put it another way, using an average gas price of $8/mcf...a decent James Lime horizontal well, which displaces between 120 and 180 acres of land, would have to produce at a constant 2 million cubic feet per day for 25 years to meet your numbers...a feat that no well in the Shelby/San Augustine/Sabine area has proven remotely capable of yet, and likely never will. Most of the wells in this area won't be producing more than 1 million cubic feet a day after the first six months, due to extremely steep decline curves.

As always, I urge all the folks to seek the advise of an experienced oil and gas attorney before doing anything...signing a lease, selling minerals or royalty, or in your case even posting on a message board. It might be nice to share accurate information once in awhile, rather than the rumors you heard over at the local coffee shop.

Thank you for your time.

Permalink Reply by Terry on December 1, 2008 at 7:57

I'm not sure where the 50% royalty percentage rumor started, but 25 is the highest I've seen mentioned in this post - which seems reasonable to me. I am in agreement with Gone Fishin and Jimmy on these posts - that patience is prudent. We have to realize that this is a public forum, and therefore it would be easy for landmen to offer their opinions on here, which may have a certain slant.

I know this flies against the concept of an open forum, but if anyone is interested in contacting me personally, IF you are a mineral rights holder ONLY and NOT affiliated with any landmen or O&G companies, I can be reached at terry_clark_1999@hotmail.com.

Thank You,
Terry

Permalink Reply by ogmladvisor on December 1, 2008 at 13:33

The 50% royalty rate was brought up by Gone Fishin on this very thread, on November 22, 2008 at 12:04pm, and by the tone of the email he sounded quite serious.

I was responding not only to Gone Fishin's plan to hold out for a 50% royalty, but also to Eric, as he does run the risk of being drained (without compensation) based on what he has offered up about his situation. All of this led to Gone Fishin telling Eric he would be ok not signing a lease based on an NPRI situation, which I then pointed out was dead wrong. My responses to all three of the above are based in fact, not opinion.

And as always, should you choose not to believe me, I encourage you to retain the services of a experienced oil and gas attorney.

Permalink Reply by intrepid on December 1, 2008 at 15:26

Are you buying minerals? Leasing? A lawyer? What would be the reason for contacting you?

Permalink Reply by ogmladvisor on December 1, 2008 at 16:11

J:

I am hearing less about what companies are offering, and more about companies ducking out of deals altogether, including leases with landowners and even agreements with other companies. I am sure some of the companies pulling out of lease agreements are trying to decrease their exposure in an unstable market, but some companies actually don't have the cash due to the current credit crunch we all keep reading about. It's real, and it's affecting how companies are doing business...or whether they are doing business at all. To simplify the problem: it's like you made a handshake deal to buy a truck at the local dealership, then couldn't get the bank to extend you a line of credit for the truck. No credit means no truck, no matter what your handshake has meant in the past. If you want hard numbers, I have heard of a large landowner in Shelby County trying to shop his minerals to various companies, and he has had no takers at $1500/acre.

As for the second part of your question, I really have no idea what will happen. Most of us that have been in this business for years have never seen anything close to the run-up of prices in the Haynesville Shale area, so we really don't have a situation to compare it to. The Barnett Shale got up to 30k/acre, but that took ten years, and the area is well proven. Our little run-up in East Texas and North Louisiana took only several weeks, and a disturbingly small amount of wells had been drilled. From what I have read, the H. Shale decline curves are far steeper than B. Shale wells, plus due to the depth the HS wells are far more expensive. Factor in that top dollar in the Barnett has now dropped 85% to 5k/acre, and you have a problem.

The bigger problem answering that question is that I only know what my company will do, and I have no control over any other company, person or group. I can't stop another company (or more likely a speculator that has no intention to drill) from coming into an area we are investing in, begin buying leases at a premium and hiking up the prices. But what I can do is choose to not make a deal with that company or speculator and the inflated per acre price, and go drill elsewhere. And that kind of thing is happening right now, small shops that had big plans to make a quick killing, and now are stuck holding a bag of very expensive acreage, and no money to drill. Not an enviable position to be in for sure.

My advice to anyone seeking to lease their land: no matter what kind of deal you choose to make, make it with a publicly traded company (XTO, Devon, EnCana, EOG, Cabot, Southwestern, etc.), or a landman/broker that can prove he is working for a publicly traded company. Your chance of success through the drillbit will be far higher with a proven commodity.

Thank you.

Permalink Reply by ALongview on December 1, 2008 at 16:46

Ogmladvisor,
On the decline curves, is it still looking like a 65% decline after the 1st year? After that is the decline rate likely much slower? Isn't it too early however to tell what the life of these wells will be being that the current acreage is somewhere near 3.5 million and very few wells have been completed let alone in producing for a year or more? Thanks!

Permalink Reply by ogmladvisor on December 2, 2008 at 1:37

Alongview:

It is just too early to know anything concrete. I am no engineer, contrary to what Gone Fishin thinks, but I would say the curves I am hearing about are at least that steep, if not more. But which wells? Where? Who drilled them? What completion/frac method was used? Which formation was actually drilled? This play is huge, with tons and tons of variables, not too mention the fact that decline curves in DeSoto Parish are sure to be different than Shelby County, Texas...we just don't know much yet.

Thank you.

Permalink Reply by Charmine on December 1, 2008 at 19:54

Ogmladvisor,
thank you for your input. I have been busy and have been pretty quiet on here for awhile. Trying hard to feel that I didn't miss the boat when I politely declined my last offer late summer. I feel that it was close to fair offer, just not quite there. Oh well, I guess that is all part of the gamble. My next concern is who will find me next? Is there anyway to get listed somewhere, so if and when the leasing starts again I will be easier to find? It took a landman for CHK a lot of work to track down my family, or so he said. I don't want to be so hard to find. We own 50% of the minerals on 83.53 acres, and I sure would like to play too! Thanks in advance for your input!

Permalink Reply by ogmladvisor on December 2, 2008 at 1:50

Charmine:

You are very welcome. As for getting on a list, there is really no such thing...plus I wouldn't advise it if there was. If I saw your name on a list of people seeking to be leased, as a landman I would think the negotiation would be a little easier than if I had to track you down.

Instead, if instruments at the County Courthouse are sketchy in leading to your ownership, file something of record to make it easier for someone to find you. The best possible thing to tip someone off that you own minerals is an actual oil and gas lease...but that would be putting the cart before the horse in this case. I would think a simple affidavit of heirship, outlining your family history, as well as current locations of family members, would do the trick nicely. You can have a lawyer do this for you, or you can probably do it yourself, or you can even recruit the services of a landman. If you are interested, you can contact me at ogmladvisor@gmail.com, and I can get you some boilerplate forms to help you complete this task.

Thank you.

Permalink Reply by Gone Fishin on December 2, 2008 at 3:38

ogelmeister,
McClendon described the Haynesville Shale as a “highly pressured formation” having twice the pressures of the Barnett and Fayetteville shales. And there’s no comparison, he said, to the first eight horizontal wells drilled on the Haynesville — all being in Louisiana — and the first eight on the Barnett and Fayetteville shales.

“These wells pay back pretty quickly “» and not quite a financial strain as you would think,” McClendon said.

EUR's of 4.5 to 8.5 Bcfe. I've been using an average of 5.5 Bcfe recoverable per well. They comment that they are comfortable with the 6.5 Bcfe for the core area which means the wells are bigger than that.
But this is the kicker. CWC (Completed well cost) of $6.5 mm now with the assumption that costs fall 10% when they get the process down to a more routine nature. Put that number up against the mid point of the recovery range and you've got $1/Mcfe development costs.

Lets check the math. 6,500,000,000. cu ft. divided by 1000 = 6,500,000 x price of gas (was 14 now 6 so lets say over the next decade or 2 an average price of $10).
6,500,000. x $10. = $65,000,000 now divide that by 80 acres per well. and you get $812,500. Add to that any oil or gas in other strata and you have a really nice well.

The eight wells are producing anywhere from 5 million to 15 million cubic feet of natural gas a day on restricted chokes. Barnett Shale wells are producing less at open choke.

McClendon joked that the Barnett wells often are referred to as monster wells, so with the Haynesville Shale’s wells being about three times more productive, they should be referred to as “triple X monsters.”

The wells, which he described as being in a class of their own, will only get better with time.

“The amazing part about this reservoir is the consistency of it and simplicity of it. “» This one is a different animal because of the ferocity and dynamics of it,” Flores said.

From an infrastructure perspective, the north Louisiana area is a perfect spot, McClendon said. It has plenty of water, was ready for drilling, already had gas pipelines in place and it was “relatively easy” to get the lease acreage put together.

And the proximity to the market also makes it easier to get the gas out at a reduced cost, he said.\


So lets see, 3 times more productive. Oh that guy doesnt have any facts so maybe I'll ask a land man.

Permalink Reply by Mary Sooner on December 8, 2008 at 8:43

You're silly if you believe everything you read. Don't forget McClendon had to sell most of his CHK stocks to cover his margin calls. And CWC of $6.5MM is what they anticipate to get to not what they are starting off at. O&G companies, just like any business is in the business of making money not losing it. If you truly believe that Haynesville wells are spectacular why hold off drilling a well on your land for a one time lease bonus when you could make a whole lot more on the royalty side? Don't ever forget the time value of money and it's especially important if you have a high discount rate. Money now is always better than money later.

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