Bonus Offer in Barnett Shale, City of Ft. Worth (For Comparison Purposes)

It's not often that we get verification of lease bonuses being offered that we can use as a comparative to what we are being offered in our own areas of interest.  Please keep in mind that this is an attractive parcel due to it's size and location in a highly urbanized area.


DATE: 9/21/2010 REFERENCE NO.: L-15058 LOG NAME: 062040 BOTANIC GARDEN
CODE: L TYPE: NON-CONSENT PUBLIC HEARING: NO
SUBJECT:  

Approve the Acceptance of a Lease Agreement with XTO Energy Inc., in the Amount of $582,801.68 for Natural Gas Drilling Under 110.988 Acres of City-Owned Properties Known as Fort Worth Botanic Garden Located at 2000 University Drive (COUNCIL DISTRICT 7)

RECOMMENDATION:

It is recommended that the City Council approve the acceptance of a lease agreement for natural gas drilling under 110.988 acres more or less of City-owned properties known as Fort Worth Botanic Garden to XTO Energy Inc., for a two-year primary term in the amount of
$582,801.68.
 
DISCUSSION:

On September 22, 2009, (M&C L-14836), Fort Worth City Council authorized the conversion of Fort Worth Botanic Garden for subsurface
drilling and the extraction of natural gas from an off site location.

A Request for Bid Proposals (RFP) for Fort Worth Botanic Garden was advertised for three consecutive weeks in the Fort Worth Star-Telegram, published on July 15, 2010, July 22, 2010 and July 29, 2010.

The following sealed bid for the gas lease was received and opened on August 5, 2010.

  

Bidder

Lease Bonus/Acre

Total Lease Bonus

Percent Royalty

XTO Energy, Inc.

$5,251.00

$582,801.68

25.00 percent

Chesapeake Exploration, LLC

$4,233.00

$469,815.18

25.00 percent


Link to story and map:
http://www.fortworthgov.org/council_packet/mc_review.asp?ID=14135&a...

Tags: Barnett, Bonus, Botanic, Chesapeake, Garden, Lease, Offer, Shale, XTO

Views: 276

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Replies to This Discussion

Permalink Reply by Tex Calhoun on September 22, 2010 at 7:38
I just talked to a landman last night regarding my city lot in Fort Worth (1/3 of an acre) and the bonus rate Chesapeake is offering (initially) is $1000/acre with 25% interest for a 3-year lease. Now I can probably get them up to $1500/acre with negotiation, but it's not going to go much more above that.

A couple of things you need to consider regarding the posted offer for the Botanic Gardens tract:

1.) It is in the best interest of gas companies to be especially generous with cities regarding gas leases since cities like Fort Worth write the rulebook for urban drilling.
2.) This is a large piece of property and it is literally the garden spot of Fort Worth. It has the most potential to be an unpopular deal, so the money needs to be very good.
Permalink Reply by Skip Peel - Mineral Consultant on September 22, 2010 at 7:50
Tex, we use bonuses paid on bid tracts in the state mineral auction as a negotiating tool on a regular basis here in LA. They must be location specific of course. And yes, for an urban area this is a good size contiguous tract and that does influence value. The fact that it is the Botanic Garden has no practical application in valuing minerals unless there is a qualifying drill site included in the tract.
Permalink Reply by Tex Calhoun on September 22, 2010 at 9:58
"The fact that it is the Botanic Garden has no practical application in valuing minerals unless there is a qualifying drill site included in the tract."

Yes. However there is a vocal contingent of folks who might use this as a propaganda tool.

The other relevant bit of information is that they are going to be drilling fairly close to the Cultural District (world-class museums, etc.) to access this property, which will also irritate some folks. However I suspect that they may be able to access it from the Union Pacific switch yard, if there's enough room for a pad site and the tollway construction doesn't interfere with access.
Permalink Reply by The_Baron on September 22, 2010 at 8:00
a sealed bid negotiation is going to be a different animal than sitting down across the table from a landman.
Permalink Reply by king john on September 22, 2010 at 8:59
thats an interesting idea. i wonder if an individual, with a sizable tract, in a desirable location, could do the same thing? in terms of the sealed bid.
also, i have no doubt that a municipality would get a better bonus than an individual, simply because of its "back scratch'n " abilities.
kj
Permalink Reply by Skip Peel - Mineral Consultant on September 22, 2010 at 9:10
Depends on the size of the tract and its location. 110 acres is a nice size tract but it is not big enough to be attractive to develop on its own for the major shale players. Unless a company is looking to be a minority Working Interest, they will only bid where they consider the chances are good that they will be the operator. The wild card in this scenario may be if one or the other bidder was interested in acquiring the lease in order to use it as trade bait to consolidate another area they were looking to drill. And tracts with qualifying well sites are worth huge bucks in dense urban areas. I doubt this tract has a well site as it would have brought a higher offer regardless of tract size.
Permalink Reply by Tex Calhoun on September 22, 2010 at 10:00
"I doubt this tract has a well site as it would have brought a higher offer regardless of tract size."

You're absolutely right. If they permitted a pad site on the Botanic Gardens property, there would be an immediate recall election of the mayor and entire city council.
Permalink Reply by DJG on September 22, 2010 at 11:49
I think the only public officials with enough "cajones" to try approve a pad site on the Botanic Gardens grounds would be that soon to be jailed mayor and his equally corrupt council members out in Bell, California.
Permalink Reply by Tex Calhoun on September 22, 2010 at 10:02
For a bit of perspective, back in Fall 2008, bonus rates were running up to $25,000/acre in Fort Worth until gas prices plummeted.
Permalink Reply by Skip Peel - Mineral Consultant on September 22, 2010 at 10:44
Tex, thanks for the feed back. We were watching the Barnett leasing in the Fall of 2008 very closely on GoHaynesvilleShale. As you can imagine it got a lot of people's attention. And it also generated some interesting discussions concerning urban drilling. Many of the original GHS members will recall those discussions.
Permalink Reply by intrepid on September 26, 2010 at 4:41
Ah yes. I do recall those days. This amount seems low in comparison but, the times, they are changing.
Permalink Reply by king john on September 22, 2010 at 12:12
tex, for perspective, was that 25k for city leases or general (the public) leases ?
kj

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