BROWN DENSE PUZZLE GETS A BIG LOUISIANA PIECE

Today's Louisiana Department of Natural Resources, Office of Mineral Resources, State Mineral & Energy Board July auction of publicly owned mineral tracts includes 29 bid tracts totaling over 1500 acres in 3 parishes: Union, Claiborne and Lincoln, with the bulk of the tract acreage concentrated in Union.  IMO, these tracts are associated with the Lower Smackover/Brown Dense prospective area which includes a similarly sized and adjacent area in S. AR.  The bid tracts span a wide area that roughly is described in extent on the Northwest by Township 23 North, Range 5 West, the Southwest by Township 20 North, Range 3 West, the Northeast by Township 23N, Range 1 West and the Southeast by Township 20N, Range 2 East.  These bid tracts represent the beds and bottoms of state owned water bodies and are more informally defined as being located in the proximity of Little Corney Bayou, Corney Creek, Bayou D'Arbonne, Middle Fork Bayou and Bayou De Loutre.

 

The import of these bid tracts, other than their specific locations, is that they are bids for state leases.  By law state leases are for a primary term of one year.  They may be extended for two additional years by the timely payment of a lease bonus equal to one half the original bonus amount for each additional year.  For that reason, there is no need for companies interested in developing a prospect to acquire them far in advance.  The time to acquire the rights to the state lands is after building a lease block(s) composed of private mineral interests.  It is also in the interest of energy companies to acquire the state leases late in the process of building a lease block owing to the fact that the bids for those tracts, including bonus bids, are of public record and therefore are of value to mineral owners in the negotiation of future leases. 

 

A state bid tract is included in the monthly auction at the request of the owner which may be a local municipality, school district, levee board or other public body, or the tracts may be nominated by a party interested in bidding for the lease rights.  All 29 tracts in the July  auction are nominated by Leslie M. Cooper.  It is common for the nominee of state bid tracts and the bidding entity, whether one and the same, to be a third party representative of the company actually assembling the lease block with the intent to develop.  That is to say that those hoping to know the name of the energy company or companies will not likely find their answer with these auction results.  What will be established by these bids is a baseline value for leases in this prospective area at this early point in the play where there are few drilling and production units and even fewer well permits not to mention one completed well which is likely not economic.  Lease values and offers are influenced by competition.  It will be instructive to see if the auction of these tracts draws multiple bidders.

 

For those with a stake in this emerging Brown Dense prospect, I suggest the following:

  • Do not get in a rush to lease.  Monitor the progression of unitization and well permits.
  • Share the basic information as it unfolds with family and neighbors. 
  • Allow the market time to define the range of values for drilling rights and don't expect any lease offers outside of that range unless you have an unusually large or strategically located mineral interest.  There is no such thing as "the going rate".  Each mineral tract is unique as to its value.
  • Consider getting professional assistance but keep in mind that you need professionals with Oil & Gas experience, not just a lawyer.
  • Understand that the order of priority in lease terms are the basic clauses beneficial to the lessor: royalty, no cost royalty and vertical depth limitation for any mineral interest no matter the size.  For those who live on their mineral tract, depend on well water or own a tract larger than a few acres, there are additional considerations involving surface use and unitization which require additional lease language and professional counsel.  The least important part of any lease offer is the bonus.  Negotiate that last.
  • Discount the "wishful thinking" factor.  This play is not proven and could dissipate and disappear in relatively short order.  In other words, be reasonable in your lease expectations.  However, keep in mind that should your area of the play prove productive, you and your future generations will live with the terms of the lease agreement negotiated now potentially for decades, long after even an impressive lease bonus is long spent and forgotten.  There is much truth in the saying, "the real money is in the royalty".

 

I will post the results of the auction bids later today when they become available.  Good Luck to all the members in the Brown Dense prospective area.

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Replies to This Discussion

Permalink Reply by Sunny Chaw on July 13, 2011 at 9:31
Thanks for responding, I know you are right. Who knows, QE3 comes along and the prices spike--this thing could break if there is something there. You are a good resource and I will continue to follow your postings.
Permalink Reply by Aubrey C. Sanders, Jr. on July 13, 2011 at 9:13

Sunny, I am not aware of any state ownership of land in northern part of Webster Parish.  I  believe North Shongaloo-Red Rock Field should be as good or bad as any other areas for Brown Dense. I remain optimistic about good possibilities for  the general area.

Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 9:36
Anywhere there are lakes, creeks, bayous, etc. there is likely to be some state owned lands.  The tracts in this auction are beds and bottoms of water bodies.  Many of the tracts auctioned in the Haynesville Shale are road rights-of-way.  Minerals in the state auction don't always belong to "the state".  The state handles the auction of minerals for most all public governmental bodies be they school districts, levee boards, parish police juries, etc.
Permalink Reply by North LA on July 13, 2011 at 5:46
Thanks for the info Skip.

Either SWN has a lot of hope in the BD or they're trying to get their stock price up before a takeover by Chevron :)
Permalink Reply by Geoff Jones on July 13, 2011 at 5:51

I haven't heard about Chevron, but that might be a good fit.  Everyone wants to show that they are in some time of liquid shale play.

 

Permalink Reply by Big McInnes on July 13, 2011 at 6:53
Yes Skip, but please remember that we do not know if T.S. Dudley is doing this for himself or another third party/larger entity. Most smaller companies do not want to deal with any type of bids with the state, there is too much hassell involved. The fact that anyone is willing to bid on State acreage is a big deal in itslef. Only time will tell, but I predict some type of landrush at the least...the best advice for landowners would be to get what they can while not being to greedy...If you recieve an offer always ask for more (regarding bonus and royalty rates), but if the company you are dealing with is not willing to budge, it is because this is still a speculative play and you risk loosing your opputunity to lease. If the play works out, it would be in your best interest to wait....If it doesn't it would have been the smart play to take 300/acre and enjoy your spending/retirement money for a while. It's always a gamble for both sides.

Thanks Skip for keeping all informed, I haven't been on Haynesvilleshale.com for long, but it seems you have a real conviction to keep everyone in the loop.
Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 7:07

Big Mc, although T S Dudley has applied and been granted operator status by the LA. DNR, they have never drilled a well in LA. and I do not expect them to start now.  I believe that they took that step in order to apply for and receive unit orders.  In this manner the company or companies behind Dudley can remain hidden a little longer.  A Unit Order allows a company to operate or To Designate The Operator.  T S Dudley will stick to the land business.  In regard to "anyone ... willing to bid ...being a big deal", I'll have to disagree.  Especially at these prices.  I would suggest that the bid by C S Tax Properties is sufficient proof of that.  As for when to pull the trigger on a lease, yes, that's a bit of a gamble.  Here again the question for everyone is what's a stake and their personal financial situation.  I like to speak to specific circumstances but will make a general statement that offers should stay the same or improve incrementally until a well is completed and announced.  Then the offers will change based on that result.

Permalink Reply by Aubrey C. Sanders, Jr. on July 13, 2011 at 10:05

Skip, 

This is very timely and valuable information. And it is free. What a deal. I hope the other "troops" will pay close attention to your posts.  Certainly I believe that many can benefit from it.

 

I think the closest minerals to me that the state owns is  the streambed of Bayou Dorcheat and maybe(?) Cypress Creek.

 

Keep the faith!

Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 10:16

Aubrey, considering the historic extent of the SMK, I'd say there is still room for other operators to the east and west of the leasehold acquired through Pinebelt, Triad and T. S. Dudley.  Whether that happens or not depends on someone drilling successful L SMK/BD wells.  If they do so, I would consider it possible that a prospective fairway could extend across much of the AR./LA. stateline area but also potentially into E. TX. and/or MS.  Now that would be a PLAY!  There's just one big hurdle to clear - that first well or wells that prove the formation economic.  I'll keep passing along the bits and pieces I find.  I think you already have a large following that will work diligently on the faith part.  LOL!  GLTA!

 

 

Permalink Reply by Aubrey C. Sanders, Jr. on July 13, 2011 at 16:23

Skip,

I would expect the BD to be present and possibly prospective from Alabama to Mexico. There is a lot of Smackover production along that trend. About 50 years ago I worked on seismic crew in MS and we were mapping Smackover. I worked a number of different prospects. I think it was around Waynesboro that we were mapping Smk.

Permalink Reply by Skip Peel - Mineral Consultant on July 14, 2011 at 1:46
For the members in this discussion, I suggest that you underline or bold the words, "possibly prospective", Aubrey. LOL!  Remember when you casually mentioned that you had seen a Chesapeake employee on an ATV on or near your land once?  The next thing you know this bunch has CHK with a million acres under lease and on the verge of announcing the BD as its next big play!  Just as only a relatively small portion of the equally widely occuring Haynesville formation is productive on the scale of the core shale area, I'll be more than gratified if a similar sized area is so for the L SMK/BD.  My suggestion is for everyone to hold their expectations in check until we have some wells to look at.
Permalink Reply by Skip Peel - Mineral Consultant on July 14, 2011 at 5:12
Gee, tony.  You thought I was speaking of you???  LOL!  No offense intended to any of the laymen involved in the discussions just a reminder that rumors should be considered in a skeptical light until proof emerges.  And that speculation on rumors should be tempered with occasional admissions of reality.  Or at least an acknowledgment that the developing Play could fall apart easily and quickly with a few unfortunate turns of event.  It would be a wonderful GHS world if all members had a play to follow and the prospect of getting a well of their own.  Among the lessons to be learned from the Haynesville Shale Play is that folks who get too exuberant often make poor decisions based on wishful thinking and faulty amateur analysis.  I'm sure we'd all like to avoid that, as much as possible, in a prospective L SMK/BD Play.

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