Barnett Shale deals are dropping but still out there


By JIM FUQUAY
jfuquay@star-telegram.com
Leasing of mineral rights in Tarrant County is moving at a snail’s pace, at least compared with the summer frenzy, and bonuses are likewise puny compared to past amounts.

More than 17,000 new leases a month were filed with Tarrant County in May, June and July, roughly double the number in those months of 2007. But by November that had dropped to just over 7,000, 28 percent below the number in November 2007.

At the same time, signing bonuses have dropped from a peak of about $30,000 an acre to no more than $5,000 an acre, with several neighborhoods reporting offers closer to $2,500 an acre. That’s if they have an offer at all, which many say they don’t.

"It’s pretty quiet out there. They’ve circled the wagons," said Dave Horger, a principal in Advisors for Neighborhood Gas Leases, a company recently formed by him and several others who helped their own neighborhoods negotiate past leases.

"I think we’re going to see things pick up a little after the first of the year," he said, as natural gas prices might stabilize and new company budgets go into effect.

Producers say most of their leasing today is aimed at rounding up missing tracts so they can drill. Producers need certain minimum acreage to receive a permit from the Texas Railroad Commission, and the leasehold needs to be contiguous and have few unleased properties.

"Right now we are doing 80 percent fill-in," said Mark Schumacher, president of Titan Operating in Fort Worth. As recently as Dec. 6, Titan was mopping up leases with the Colleyville Area Mineral Rights Association, which covers about 1,500 acres and was already "about 98 percent leased," he said.

Prices

As an illustration of how bonus offers have fallen, consider Titan’s experience in Northeast Tarrant County. Its deal with the Colleyville group, first struck in late summer, paid $25,000 an acre and a 25 percent royalty. And to get the area fully leased, Schumacher said, he continued to pay that through the latest signings.

But after Titan rescinded its $25,000-an-acre deal with the Bedford-Colleyville Mineral Rights Coalition in October, it later came back with two options: a $10,000-an-acre bonus with a 22.5 percent royalty or a $7,500-an-acre bonus with a 25 percent royalty. Negotiators for the Bedford-Colleyville group declined to endorse that.

"So soon after the bigger bonuses were out there, it’s just harder to accept" the lower amounts, said Rick Wollin, a spokesman for the homeowners group. "People are waiting for the dust to settle."

'Shut down’

More than the dust is settling.

Schumacher said the $10,000 and $7,500 offers were made in November.

"The more time went by, the more the market went south," he said. "I’d say $5,000 is the new top, and there are an awful lot of offers at $2,500," he said.

That would appear to be the case in Lewisville, where Cherokee Horn is offering $2,500 an acre and a 20 percent royalty on behalf of Titan, said Kristi Curry, who accepted that deal in late November.

"At first I wasn’t going to sign and instead wait it out. But my perspective is, this is found money," said Curry, who said her family plans to use the bonus for a vacation.

On Dec. 3, the Summit Area Neighbors Association in western Lewisville agreed to an offer from Williams Cos. for $4,000 an acre and a 25 percent royalty, said Lynette Haines, a group organizer. That didn’t look so appealing until the leasing slowdown hit, she said.

"There were reports of drilling companies pulling out completely. People held out, but you also didn’t want to be left out," Haines said. The final vote in favor, from 420 among her membership of about 450 homeowners, came after Williams’ land agent said the signing bonus would soon fall to $2,500, she said.

Don Morris, an organizer at the Northeast Tarrant Gas Leasing Organization, said Chesapeake Energy had last left an informal offer of a $5,000 bonus and a 25 percent royalty to his group, which includes parts of North Richland Hills and Keller. But there has been no recent communication with Chesapeake, and XTO Energy, which previously had expressed interest in the area, "is totally off the table," Morris said.

"Everyone’s kind of shut down right now," he said.

Jobs

Property owners aren’t the only ones who have seen things get tighter. Work for landmen, who collect mineral-rights leases, has also fallen.

David Buchanan, a spokesman for Dale Property Services, which in Tarrant County works on behalf of Chesapeake, said the company still has about 75 landmen on contract in the Barnett Shale, fewer than half what the company reported about a year ago. And most of the remaining landmen are researching land titles rather than working in the field, he said. Others have been reassigned to other natural gas plays nationwide, he said.

"We’re solely focused on leasing in units that are almost complete," Buchanan said of the Barnett work. "Everything’s just slow."

It’s also tougher to convince landowners to sign when bonuses are a fraction of what they were.

"Some people think cold weather this winter will drive prices and bonuses back up. Some won’t sign for less than the peaks this summer," he said.

"Our leases are averaging about $2,000" for a signing bonus and a 25 percent royalty, he said.

Mark Caffey, head of land-services company Caffey Group, said he has gone from using 256 landmen to 182 in the Barnett. He also gets about 20 phone calls or résumés a month from landmen looking for work, but he has taken on just a few who were highly recommended.

What’s ahead

Business might get a bump as producers who aren’t already in the Barnett give it a look, Caffey said.

"I know of three or four companies we’ve talked to," he said, but even that’s not all positive. "A lot of it is being pushed by the lease bonus prices dropping so much" and making the play more affordable, he said.

He thinks folks should recognize the past year’s leasing boom for the rare event it was.

"We’ve never seen in our lifetimes what has happened in the Barnett Shale in the urban area," Caffey said. "The prices were raised because of competition, but they’ve come down because of economics."