Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on June 5, 2018 at 14:11

Reminder.  None of the AC wells will be paying severance tax until they payout or produce for 2 years.  What a great deal for the industry.  If you know what a "partisan dog whistle" is, that line about "I'm from the government and I'm here to help" is surely one meant for those who could care less about the facts but respond to propaganda.  It has nothing what so ever to do with the emerging AC play. 

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Permalink Reply by Skip Peel - Mineral Consultant on June 6, 2018 at 2:48

There has been no lack of willing bidders at a quarter royalty for LA AC acreage so far.  Jay, are your high bids at less than a quarter royalty accepted by the state? 

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Permalink Reply by Skip Peel - Mineral Consultant on June 6, 2018 at 4:14

Have those successful bids below the minimum been relatively recent?  Or since 2008?  Yes, I've seen the state take the higher bonus but only on bids where the quarter royalty minimum was met.  I don't follow south LA as closely so I could have missed it.

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Permalink Reply by Skip Peel - Mineral Consultant on June 6, 2018 at 4:32

I checked and need to make a distinction here for the sake of accuracy.  The state allows the authority owning the minerals included in a monthly auction to require a minimum bonus and royalty and many, but not all, do.  Briggs is complaining that the governmental entities in areas where there is publicly identifiable AC activity are using that right to require bid minimums.  Interesting that he has never complained about governmental entities in the Haynesville Shale fairway requiring a minimum.  That may be because all the early Haynesville operating companies went to quarter royalties not long after Chesapeake announced the play in April 2008.

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Permalink Reply by Thomas Maglone on June 13, 2018 at 6:23

True

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Permalink Reply by David Crockett on June 13, 2018 at 15:52

The state lease sale was today. Several tracts were leased. Sorry I’m no good at posting the results. 

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Permalink Reply by David Crockett on June 13, 2018 at 15:55

The state lease sale was today. Several tracts were leased. Sorry I’m no good at posting the results. 

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Permalink Reply by Skip Peel - Mineral Consultant on June 14, 2018 at 2:16

I posted the auction bid results in the original discussion in the Austin Chalk Group.

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Permalink Reply by Dion Warr, CPL on June 14, 2018 at 3:17

Group:

This article and commentary conflates two different issues: minimum bid requirements set on tracts owned by the State, or any political subdivision thereof, and the use of state bid results by private owners in order to index or "set" the terms of their own respective offers and counteroffers.  In practice, these issues are not only separate but largely incomparable.

First, the article suggests that the use of minimum bid requirements is "far from common practice" - that is not really a fair context or characterization.  The State and various agencies have utilized this provision for decades - it is generally applied unevenly, but in many cases comes into play in highly competitive areas or areas of prior and/or current proven production.  The nominating parties (typically, a prospective lessee) may plead to the State or agency to, or counsel the governmental entity to not exercise that option, and sometimes they may listen - many times, the entity pushes forward with bid minimums once the notion has been introduced into the discussion.

Second, the characterization that the State Mineral Board procedure, including the use of minimum bid requirements, somehow upsets the free market illustrates a lack of understanding of leasing processes, at best.  Both oil and gas brokers and their industry clients understand and regular assert that the state bid process and private leasing are two separate mechanisms, and the terms of one have no correlation with the terms of the other.  On a number of occasions I have personally explained this to private owners wishing to make such a comparison (generally, in hopes of plying a successful counteroffer).  It may become more similar if private owners were to bid out their properties in such a procedure, however, the bid process would then virtually guarantee that the private owner would accept the "winning bid" at terms and then execute the lease forthwith - in my experience, in a competitive leasing environment that type of "lock-in" is something to which most private owners are unwilling to submit; they wish to be free to contract with whom they wish.  The state bid process virtually precludes that from occurring.  The state and all political subdivisions are bound statutorily to make such lands and minerals accessible to all and must seek the best terms regardless of affiliation.  This forbids preferential or exclusionary dealing (no more "Win or Lose Oil Company" leases).  Any party that meets statutory, regulatory and procedural requirements ("registered bidder") may bid on any tract so offered.  Even the caveat of "minimum bid requirement" must be announced and made part of the bid procedure prior to the solicitation of bids, so that no party is caught unaware of any such provision.  Prospective bidders always have the ability to opt out from making a bid, even on tract(s) which they nominate.

The use of minimum bid requirements is also generally self-limiting.  Unless part of an ongoing policy, once governmental entities recognize that such terms are unsupportable in the market or in a particular area (ie., enough tracts are returned "no bid"), generally the offering agency either adapts their minimum bid terms or drops them altogether.  As opposed to federal leasing where such tracts can then be bid "over the counter", or a private auction where the offering party can opt to "drop the reserve" at the time of the procedure, the offering entity must resubmit the tract(s) at a separate lease sale.  This type of bid-cycle of course as occurred on many occasions, but for reference one only need to go back to lease sales in the Haynesville in the months and years after the gas price crash in mid-to-late 2008.  Minimum bid terms went from stratospheric to "normal" to nearly non-existent during a roughly three-year interval.

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Permalink Reply by Skip Peel - Mineral Consultant on June 14, 2018 at 7:06

Thanks, Dion.  Your usual informed and spot on analysis.

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Permalink Reply by Skip Peel - Mineral Consultant on June 14, 2018 at 11:30

Dion, I have a question that I think you can answer.  When did the Louisiana legislature pass a law that allows mineral lessees to record in the public record a Memorandum of Lease, as opposed to the practice of recording the lease contract in its entirety?

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Permalink Reply by Dion Warr, CPL on June 14, 2018 at 16:00

Skip:

Apologies for the tardy response - as I recall, memorandums, declarations, and extracts of lease were generally permitted under the provisions of the Civil Code which allowed for similar types of "notice" instruments to be placed of record for real property (Art. 2721 or thereabouts if memory serves, but that's been a while).  Generally all that was required was parties, dates, effective term and description of property sufficient so as to be locatable (whether by incorporation of lands described under some recorded act, property description, metes and bounds, etc.) and executed only by the Lessor(s).  It was this way for years (certainly long prior to me becoming a landman).

In any event, that provision with respect to oil and gas leases was repealed by the Legislature in 2006, so there was a short period of time (July 1, 2006 until... see below) where no such provision existed and a lessee had to enter an "entire" lease of record (though presumably, you could make acts subject to other unrecorded agreements, side letters and/or counter letters - they just had no effect as to notice to third parties, but that was another issue).  Major terms and provisions had to be incorporated into the recorded agreement - the above "names, dates and property" was deemed insufficient to comply with statutory notice.

This continued for about a year, until June 18, 2007 (not that this is one of those "red letter dates" for me, lol), at which time a subsequent legislative act became effective that reinstated such provisions for oil and gas leases by amendment to the Public Records statutes (R.S. 44:104) - however, where reinstituted, there were additional requirements - namely, all parties had to execute the "notice" agreement (thus making lease brokers happy everywhere as now every memo had to be sent off to the Lessee to execute, or other arrangements had to be made (AIFs, "Lessee signing parties", etc.), and additionally, all possible periods in which the lease could be maintained by payments / rentals had to be spelled out in order to be held as valid notice (e.g., extension payments, shut-in rentals, Pugh rental payments, etc.).

Eventually, ca. 2010, entire sections of the Public Records statutes were reorganized back into Civil Code articles [including this one - the current iteration of the applicable statute was redesignated under Civil Code 2742 (R. S. Title 9) effective 1/1/2011], where it remains currently.  However, the essential text remains unchanged.

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