Replies to This Discussion

Permalink Reply by RAY on September 16, 2008 at 0:57

I hope this not SOS from July !!

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Permalink Reply by P.G. on September 16, 2008 at 3:54

Is Chesapeake really intending to do major drilling or just enough to flip their leases?
Seems there is a lot of news about how they are selling a piece of their lease holdings to this company or that one!
Where's all those wells? Where's the pipeline to get their gas to market?

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Permalink Reply by Les Bamburg on September 16, 2008 at 4:00

PG, its coming. Chesapeake has 11 rigs in the HS now drilling mainly horizontal wells. Ownership sales are just helping finance all the activity.

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Permalink Reply by paige linn on September 16, 2008 at 12:32

Does anyone know where the acreage is located that PXP purchased. It would appear that the location[s] now has a stamp of $30,000 per acre. Which should not come as a surprise to any of us.

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Permalink Reply by Bobi Carr ("parker") on September 16, 2008 at 17:07

Paige,

Not necessarily. If the price was $30,000. That does not mean that the price paid to a mineral owner is now equal to $30,000.00.

There are acquisition cost to account for.

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Permalink Reply by paige linn on September 16, 2008 at 17:12

Parker,
The way the statement reads, it appears the costs are to be shared beyond the initial 1.65B. Do you know where this acreage is located?

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Permalink Reply by Bobi Carr ("parker") on September 16, 2008 at 17:24

Paige,

I have no idea. But soooo much has changed since this time.

Lots of people have tried to equate what PXP has paid with what the operator's will pay to lease.

I can understand some correlation but I do not feel that one is equal to the other.

It just seems to be comparing apples to oranges to me.

This is just my opinion though.

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Permalink Reply by Randy on September 17, 2008 at 1:20

It doesn't equate, PXP is paying a premium just to be an interest holder. They just have to finance, they have none of the other overhead that is involved. They don't have to source raw materials, acquire or service leases, etc etc etc.

For a resource play, it's a great deal, pay for a percentage of a guaranteed profit.

Randy

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Permalink Reply by Randy on September 17, 2008 at 2:29

But in the landowner's case, the operator is paying them AND shouldering the burden, whereas in the PXP case they are paying them a larger amount not to have to shoulder any burden. As I see it. I know I have different colored glasses than most.

Randy

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Permalink Reply by Grillin' - MmmMmm on September 17, 2008 at 3:34

Randy's right; PXP not only has to pay for their share of the well, they also have to pay for CHK's share of many of the wells. They are paying what is called leverage because CHK had the foresight to be a first mover in the play, get the leases signed, drill the early wells, etc. I would question the "pay for a percentage of a guaranteed profit"; nothing guaranteed here!!

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Permalink Reply by Grillin' - MmmMmm on September 17, 2008 at 4:10

Here's the deal in a nutshell:

- PXP paid CHK a bucket of money for 1/5 share of all of their leases, existing wells and operation, making them a 20% partner in all costs, revenues, liabililities, etc.
- PXP also agreed to pay all of CHK's drilling costs on their remaining 80% up to a certain amount (almost $1billion more - also a big bucket!!)
- PXP will ahve to pay their 20% of all drilling costs, expenses, etc from here on out. So they won't technically have "expense calls" but they will be billed monthly (or have the cost netted out against their share of the revenues).

PXP paid handsomely for this deal with lots of leverage going against them. I can't make the economics for this deal work until gas prices get above $10/mmBTU but maybe that's their long term view.

Permalink Reply by Spring Branch,mineral owner on September 17, 2008 at 2:04

Paige the PXP deal involved Plains acquiring 1/5 of CHK's Haynesville acreage position . That means PXP owns 20% of each and every acre that CHK owns in the Haynesville play. If you know where CHK's acreage is, then by definition you know where PXP's acreage is! It's really quite simple.

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