Looks Like the Party Is Over (At Least for the Time Being)

My brother-in-law was in town from Houston over the weekend. He is a geologist who works deep water projects for Shell. He has been able to sit in on some forecast meetings for his projects and also on some meetings for various inland projects that he might start working on (none would involve any HS projects that Shell is currently involved with).

From the meetings that he has attended, it is his opinion that the industry as a whole is in for some rough times and could be so for an extended time period. He said that there have been numerous projects put on the shelf dust that have a high probability of success because the cost/profit ratio is out of whack and will get even more out of whack as the price of the product continues to decline. He does not see the price stabilizing any time soon unless there would happen to be the mother of all winters this years. Unfortunatley, it appears that global warming will make sure that this doesn't happen.

My family has yet to be approached about leasing our acreage. From the discussion that I had with my brother-in-law as to the cost associated with drilling a HS well, I am apprehensive that we will never be approached about leasing our acreage.

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Permalink Reply by Shep Jones on December 4, 2008 at 11:41
Oil Neophyte:

These low prices will force many companies to re-think their plans for all projects and not just the Haynesville Shale. The exhorbitant prices that were paid by Chesapeake and PetroHawk were fueled by these 2 things:

1. The egos of the CEO's for both of the companies (though both Aubrey and Floyd will deny this)
2. An ill thought out strategy by Chesapeake to quickly amass a large amount of acreage by paying a much higher than average bonus figure. It was also felt by Chesapeake that by paying such a high bonus figure, this would serve to squash any competition by making is too expensive for your block busters and your Mom and Pop outfits to compete for acreage.

Unfortunatley, this plan backfired on Chesapeake when Petrohawk, Camterra, EnCana, etc. all got into the game thereby creating artificial bonus prices that only benefitted the landowners. Why do you think that Chesapeake laid off some of its position to Plains and that PetroHawk is now trying to lay off some of its position. They both realized that the market cannot bear these artificial bonus prices because of the fact that NG has to be at at least $6.80/mcf to make even a marginal profit on a Haynesville well.

Your b-i-l is correct that there will be leasing continuing in certain select areas, but I have got to believe that it will be at a much reduced price.

I don't care how much gas is underneath the ground. Oil companies are not in the business to simply double there money (or in many cases, even triple it). If the well does not fit their profit model, it will not get drilled.
Permalink Reply by Dena A1 on December 4, 2008 at 13:45
GoshDarn: With all the doom and gloom that is among us, thanks for stating that the glass can be half full instead of half empty.
Permalink Reply by Henry, Landowner on December 4, 2008 at 14:10
What is the quote?

There are two kinds of people who forecast the future: those who know they don't know and those who don't know they don't know.
Permalink Reply by BirdDawg, plain ole' idiot on December 4, 2008 at 14:15
And I ain't real sure if I know what I think I know. But I think I know it. OOh well, maybe I do, or maybe I don't. Dang Henry, why did you have to confuse me?
Permalink Reply by Henry, Landowner on December 4, 2008 at 14:21
Sorry BirdDawg.
Permalink Reply by BirdDawg, plain ole' idiot on December 4, 2008 at 17:05
Its all right Henry. I'm easily confused.
Permalink Reply by Henry, Landowner on December 5, 2008 at 8:16
Me too BirdDawg.
Permalink Reply by SharonB T18N R15W S8 on December 5, 2008 at 3:58
What I am is what I am, Is what you are, or what? Love that song....
Permalink Reply by Skip Peel - Mineral Consultant on December 5, 2008 at 7:23
And the New Bohemians?
Permalink Reply by Aegis on December 5, 2008 at 10:50
Actually, it is
"Philosophy...is a cereal box
Religion...is a smaile on a dog"

Context and all that.
Permalink Reply by ELLIS HUGH on December 4, 2008 at 14:39
It is going to be interesting to observe the changes in the nature of the mineral owner/lessee relationship. When (or if) the Haynesville picks up again, a lot of people are going to be even more skeptical than before. Who do we lease to now? Chesapeake? Petro? Small Independents? Brokers? "lease-flippers (ha)? Do you lease with the company that will provide you the greater bonus amount or do you lease with the most prudent operator? Do you limit negotiations for fear of being left out or do holdout for only the best terms? I am sure each mineral owner, and lease buyer, will have their own agenda as each situation is different, but what will the general "lease buying landscape" look like next go round. Will a certified check be enough to merit a signature, I think most people are very leery of drafts, and rightfully so. This was discussed quite exhaustively and I am sure most know what to look out for, but I am interested to see how the industry and mineral owners will react to another "land grab" situation.
Permalink Reply by BirdDawg, plain ole' idiot on December 4, 2008 at 17:04
Ellis,
I really don't think it is a question of "if", just "when". There is just too much gas in the HS.
Can't believe your in the business and don't realize that. I will say I don't believe we will see the big bonuses again. Unless it is far in the future when gas prices go back up even higher, and it will happen eventually, much to the O&G and some landmens dismay.

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