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Permalink Reply by kittycatmama on February 26, 2013 at 16:44

I read about the suit in yesterday's financial news. Suit says Chesapeake & Encana acted like competitors & then one walks away from the deal. Suit alleges this was a "rigged" bidding process.

Brought back a feeling of deja vu. Gas companies get in a bidding war for acreage in new discovery. Mineral owner signs contract for $20000 an ac lease. Then gas co. never honors the lease OR 3 gas companies are competing for a lease. Then one says, this really isn't in the core based on our maps (and NO we can't show you those maps-confidential). Offers $5000 an ac. take it or leave it. Competitor says I will give you $6000 an ac. & says you better take it or we will cut you out of the section, competitor 3 then never calls back. By now the mineral owner is scared silly and jumps at the $6000,20% lease, & allows all the deductions the co. wants to take. Calls his attorney for advice, but the shale is so new, no one really knows what kind of percentage is good. Attorney compliments mineral owner for getting $20% & $6000 an ac.  Anyone have any of these stored or "repressed" memories

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Permalink Reply by Skip Peel - Mineral Consultant on February 27, 2013 at 11:23

Few land owners have a basic grasp of leasing dynamics.  Example, two companies are competing for leasehold in half a township.  In the beginning all the targeted sections are in play and offers are made and trumped.  Bonus offers rise, land owners hear stories of higher bonuses paid in areas other than the subject half township and think there is such a thing as "the going rate".  They hold out for a better bonus.  One or more owners of large acreage in their section execute leases to one company.  That company then holds the majority of the section and the competing company pulls their offers.   Each company wins the competition in some sections, loses in others.  Without competition there is no need for a company to incease offers and they can employ several strategies to get additional leases based on their timeline to drill. 

The bulk of leasing in the emerging Haynesville Shale Play was by or on behalf of "operators".  Operators wish to operate (drill wells) not to buy leases in a section where a competitor will have the right to operate. What goes up can and often does come down.  And circumstances change without warning.  Too many thought that value would only go up and not come down and that all the energy companies wanted their minerals without regard to what was happening in their section. 

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