Replies to This Discussion

Permalink Reply by JWC on November 11, 2009 at 8:27

We may know what is going on with them tomorrow. Thanks j..........

Permalink Reply by Wilma Watts on November 11, 2009 at 8:54

Last call they were real real positive. I will be shocked if they change their tune.

But keep in mind the production side is being split off of Encana from what I recall, so that might change their plans. I guess we will see.

Permalink Reply by JWC on November 11, 2009 at 9:07

Yeah and if you remember they were the first ones to come in last year and offer 5k an acre pretty far South.

Permalink Reply by Wilma Watts on November 12, 2009 at 2:33

Comment on Devon/Crimson well:


JIM DECOSMO, PRESIDENT AND CEO, FORESTAR GROUP, INC. : Thank you, Chris, and welcome all those who have joined us on the call this morning. In the third quarter of 2009 and year-to-date, Forestar has made significant progress of executing our strategy and our strategic initiative, despite challenging economic conditions. In the third quarter of 2009, and as part of our strategic initiatives, we sold about 20,000 acres for $39.5 million.

We also received approximately $20 million in reimbursements from the Cibolo Canyons Public Improvement District; a positive reflection of the value that is being created, and its ability to generate the ad valorem tax-revenue stream required to support the district's bonding capacity.

For the quarter, we leased about 10,800 acres in East Texas, for approximately $15.8 million, which equates to an average of almost $1,500 per acre. In addition, we'll receive 27% royalty interest on oil and natural gas production, plus other agreement terms I'll review in the mineral section. This is a significant step change in our agreement terms in East Texas, and a reflection of the capability and the competence of our team.

. . . I also want to update you on a recent development that was announced by Devon Energy on Monday, November the 2nd. Devon issued a news release announcing the results of a successful Haynesville shale well in St. Augustine County, Texas, achieving an average continuous 24-hour flow rate of 30.7 million cubic feet of natural gas equivalent per day.

The Devon well is not on our mineral acreage, but it is a positive factor relating to the trend and the development of the Haynesville Shale in East Texas. This is the same information for Louisiana; it's acres by county in the table on the right, with a map illustrating the status of the mineral acreage. As we go forward, we're committed to providing additional disclosures to include relevant developments in the basin that may potentially impact our business and assets. . .

MARK WEINTRAUB, ANALYST, BUCKINGHAM RESEARCH GROUP: Thank you. Good morning. I guess I'm trying to really figure out how significant the increase in the mineral-rights activity is. You noted that Devon had the well in St. Augustine and then you've got 13,000 acres there --. First of all, how close are you from where Devon was drilling the well? It looks like you've got -- it looks like you leased out a lot of acres there in the quarter. And how far away is that from where the activity is taking place?

JIM DECOSMO: Mark, if you look at our ownership in St. Augustine County, and the current intelligence on that well would say that it's in the northern half of the county. So, we have property that's in the general vicinity. As I said in my comments, we're encouraged by that. It's a significant step change to the west, from where the core of the Haynesville has been reported to-date.

So we're encouraged by the activity, by the performance of that well and its location. As I said, it is not on us, but it's a good step in the right direction, and it's an indication of the trend of the Haynesville.

MARK WEINTRAUB: And with the big step-up in the leasing activity which you've had over the last year in general, not just in this quarter, is it expected that you will see higher volumes coming off of your land, which will feed through to higher royalty payments? Obviously, the price of nat-gas and oil is going to be a factor there. But, directionally, would -- if the oil-and-gas markets were to hold up reasonably well, would you expect meaningful pickup in royalty streams right now, in the year ahead?

JIM DECOSMO: Mark, the royalty is just a function of the current wells that are in place, and the wells that are coming on line and the wells that would be drilled. So kind of back to your comment, with regards to the market, your assumption was if it stays relatively flat, then we would guess that the rate of activity would respond accordingly.

What I can say, Mark, is that, given the strategy and the initiatives that we have, Forestar has got a full-court press on promoting the acreage that we have for lease, making sure that we've got a very good understanding of what's going on in the marketplace to negotiate the very best terms and conditions for Forestar and, obviously, for the shareholders. It's a little bit difficult to forecast the activity part of it. But I can assure that what we're doing today is considerably different then what we were doing two years ago.

I'll give you just a little example, Mark. In the leasing in the third quarter, there had been some ongoing negotiations with regards to the location of interest. And our team was at one of the oil-and-gas conferences, and we had a booth. And we were sharing prospect and lease information and opportunities. And it was evident to the market that we were promoting some acreage that had interest in it. And we believe that it helped push that deal across the line. So that's just an example of some things that we're doing today, that we were not doing a couple years ago.

So, back to my comment, Mark -- it's a full-court press and a little bit of a new day, as it relates to our promoting and getting the best deal terms and conditions in place.

MARK WEINTRAUB: Okay. That's very helpful. Maybe I can come at it one last way, and see if this is helpful. For instance, I think it was maybe a couple years ago, there were some sales in DeSoto County, where, rather than having -- rather than getting a percentage of royalties, you basically got everything up front.

I assume that you looked at that as an alternative; selling the mineral rights outright, as opposed to getting an up-front payment and royalties. Can you give us a sense as to what the types of values it might have been, had you chosen to go that route instead of the $1,500 up front, and then the royalty proportions?

JIM DECOSMO: Mark, with regards to the DeSoto County transaction, I don't know that I can get connected with that transaction in particular, but what I can tell you is that the $1,500 an acre lease bonus and 27% royalty, in our opinion, was, by far, the best alternative and the greatest value, looking at all other options or alternatives, whether it was an outright sale, whether it was negotiating more lease bonus or higher royalty interest.

The way that we put this deal together, we firmly believe, and fundamentally believe, it was of the greatest value to Forestar and, obviously, to the business.

Permalink Reply by Wilma Watts on November 12, 2009 at 5:52

New update on Devon and Crimson Kardell well - interesting commentary, mostly bullish - also discusses Cabot's oil play in this area, wells IP testing 800 barrels of oil per day, incredible:

http://www.lsgifund.com/TVF/Nov/CXPO.pdf

Would be nice if Devon or Crimson found some oil to go with the natural gas!

Permalink Reply by JWC on November 12, 2009 at 6:56

Good updates Wilma. Thanks for keeping us informed. Good information for those of us who have not leased.

Permalink Reply by DR on November 12, 2009 at 6:58

Nice write-up on Crimson. Notice that he has increased his holding in Crimson from 1.1% in Oct (before well results) to now 2.0%.

Permalink Reply by Wilma Watts on November 12, 2009 at 7:04

Am listening to Encana's call now. I hope they talk a lot about East Texas!!

EnCana is a good company also I think, although I have not dealt too much with them.

Permalink Reply by JWC on November 13, 2009 at 0:26

What did Encana have to say Wilma?

Permalink Reply by Wilma Watts on November 13, 2009 at 2:33

They said they are developing their technical expertise with lateral wells in a number of areas including haynesville. Their technical people talk about what works and share information from field ot field. They plan a lease retention drilling program in the haynesville, but the laterals will not be as long as in some other fields they drill to reflect unit size. The company is trying to sell or use natural gas assets to move more into crude oil development. They said they would not call the current natural gas market a glut, but we have plenty of gas for the next 100 years. Really did not talk as much about haynesville as i expected.

Permalink Reply by JWC on November 13, 2009 at 3:19

Thanks Wilma. Seemed Encana was up to something when they closed their office in San Augustine a while back.

Permalink Reply by jffree1 on November 14, 2009 at 3:32

I think we may have to wait on Encana to do their break-up/stock split before we hear much more about what they are doing on the ground... JMO.

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