Replies to This Discussion

Permalink Reply by po boy on August 10, 2008 at 10:23

Very good points. Also needs to be noted that the companies go not need all the land in the area to be leased, or even to compete with each other, as they trade and swap leases like trading cards .

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Permalink Reply by Snake Stewart on August 10, 2008 at 10:40

Welcome to the site WJP ! I though that was what the 60 to 90 day wait was for that O&G's are needing now after you sign before their paper may or may not be any good ? That gave them time to prove title.I will not accept an inferior lease just because the landmen are snatching up junk paper because of the great bargain they seem to be getting for the company. I have been under the impression that these polished pro's didn't make those kinds of mistakes or if they did they would be reinbursed for the money they were out. I have seen several suits in the paper as of late showing companies suing for royalties that they apparently paid to the wrong individuals.
What might be some of the considerations put into play that you speak of. . . . . .
"Well since you guy's know how this works , we ain't gonna' try and frog ya' like we have been doing these ignorant people in NW La."

For $40,000 to $50,000 and 35% I will be able to guarantee my paper, my moms paper , my next door neighbors paper, heck for that kinda' money I may even be able to guarantee your paper and we haven't even met I don't guess.

I must be the most deluded person in delusion history because if $30,000 for one year for one acre with a $15,000 second year rental is good enough for the city , you can bet I am delusional enough to think its good enough for us regular folk as well. Until of course the values climb some more after the newest state numbers come out and they pop another couple of those XXX Shalagators at 15Mmcf per day wells.

I am not Nostradomas but the longer it takes these guy's the more its going to cost them.Take your time boys, My wife said I got another 20 years to do before I can retire.

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Permalink Reply by WJP on August 10, 2008 at 12:08

There are things that a check of the records cannot show, like missing heirs that may have claims or bad boundary lines or people who can claim land by possessing it for a certain length of time. Landmen also go out after a well has drilled and do curative title work at the direction of the company title attorneys - they clean up stuff that the title attorney directs them to do, and then the attorney can issue an opinion. That opinion is backed up by large malpractice and title insurance policies. That's when the companies decide who gets paid, and in what percentages. That is the sort of guarantee I'm referring to.

As to other considerations, there's probably royalty overrides and operating agreements and stock swaps and all sorts of stuff that makes the buying and selling of leaseholds between companies more attractive.

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Permalink Reply by Rick on August 10, 2008 at 1:59

There does seem to have been a slight calm or slow down in some areas of north DeSoto and south Caddo, perhaps because most large areas are already leased, not sure. As landowners, we all hope for and work for the best lease we can get and the unleased should continue to do that, I am still unleased and there is a rig drilling less than 2000 ft from my house, so force pooled my be my option.
But whether the companies have decided to act together to slow the rising lease prices or not, we will probably never know, we have to realize these folks are the biggest in the US and they have alot more knowledge and experience doing this than we do and they ARE in it for the money, not to make us rich unless they get richer. I think we need to consider that Chesapeake, very early on, annouced that they were here and wanted to lease 250-300,000 acres, well, now they are at around 500,000 acres, not to mention Petrohawk and other companies land portions.
If you figure just CHK and put it to a calculator, you see that CHK already has more land than they can drill in the rest of our life time; let's say they only have 400,000 acres, divide that by 640 and they have 625 sections, if they drill 8 wells to a section, which Mr. Mclendon said they would, that's 5000 wells, divide that by 12, which is how many rigs they have said they will usually be using, and you get 416 wells per rig; if each well takes 2 months from clearing of location to completion (some may take more but at 16-18000 ft total, few will take less) then you have 833 months, divided by 12 months gives you 69 years of drilling just for CHK. So even though we would like to think that they have to have our remaining land, they don't really unless they just want it. However, with that much drilling going on, the unleased will get their revenue eventually, so I am gonna work to figure out what "forced pooling" really is and what I have to do and can expect.

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Permalink Reply by Snake Stewart on August 10, 2008 at 2:39

Hey Rick , you make some very valid points. I do believe that while we may not fully understand the amount of drilling that they can and can't do , rest assured they will not be leasing up a large amount of high dollar property that they couldn't get drilled. CHPK stated that they will have a well completed every 5 days on average. If you plug the projected completion rate into your equation I believe you will see a greater ability by O&G's to hold everyone by production that they need to.There are many things that I still don't understand about this business but one thing I do know is that loosing money by not drilling high dollar acreage isn't at the top of their to do list. The shareholders , who they claim are the reasons they do what they do to us ,wouldn't find much use for such wastefull trends and would cause some problems for the powers that be at the head of these giant organizations. Thank you for your post and keep plugging away!

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Permalink Reply by DYST_JP on August 10, 2008 at 4:03

Not only is the number of available rigs going to be a limiting factor, but basic economics. That being as supply exceeds demand price goes down. There have been some reports that it will not be profitable to drill a horizontal well to this shell if prices fall below $8 mcf. The amount of gas being projected in this area could easily cause this to happen if every possible well was drilled and put into production. I wonder if any of the major O&G companies have considered a LNG (liquified natural gas) plant somewhere around the port to import some of these reserves to other countries. This could increase demand and stablize price because some foreign markets have much higher natural gas prices than domestic markets.

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Permalink Reply by Snake Stewart on August 10, 2008 at 9:03

I eluded to the exportation on a previous post and was shot down like a nerd at a Miss Tropicana Bikini Contest. I have heard Mr. Chspk say that this play would be profitable at even $4 mcf. Now whether he was grandstanding or not is open for discussion.I do believe that as vehicles are either converted or built to run on N/G this will also creat a massive need for or gas . Until that market is developed the price of gas will bounce around at the lower end of the scale. It would be nearly impossible for anything else to happen I am afraid.There isn't any possible way for every well to be drilled but nearly every area (unit) will get drilled. With Chspk putting a well on line every 5 days is a miracle all unto itself !

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Permalink Reply by insomniacnla on August 10, 2008 at 9:31

Hey Snake,

I re-read all of the conference call transcript earlier today (now you don't have to listen to it, you can read it). I believe that McClendon stated that as much as 50% of the land that CHK has leased in the Haynesville is held by production. I also noticed that he stated that in the Barnett, CHK was having trouble forming unit sizes of 640 acres because of lease provisions that were negotiated by the landowners. CHK is having to create units along the lines of 240 acres (I can't remember the exact figure) and that CHK is in a race there to drill before the leases expire because there are very few areas that had existing wells. McClendon stated that in the Haynesville, they do not anticipate having the same problem.

I still plan to lease my land for 3 years with no option and hope for a well but it will be very interesting to see just how fast the pace of drilling will be. I suspect that many of us will be free to renegotiate in 3 years. Previously, other companies in my section leased my neighbors for 3 years and 6 months before the lease expired, the company came out and said that they needed more time, they did not have the rigs because of a shortage and got everyone to sign a 2 year extension. I think that CHK will be doing the same thing in a couple of years, they will need lease extensions and most people will go along but it is going to cost CHK more money.

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Permalink Reply by kfly on August 10, 2008 at 9:41

Many years ago, there was an LNG plant in Kenai Alaska, operated by Phillips Petroleum, that shipped LNG to Japan. Maybe you could get something started, Snake.

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Permalink Reply by reg on August 10, 2008 at 13:10

Why the big rush to sign? If you don't sign and they put a well in your section that produces, it will be unitized. If you are a non-leasing mineral owner in that unit, then you will not get a royalty, you will be a PARTNER in the well. Once the well pays off (Produces 6-7 million in gas- at 5 million cf per day this takes 120 days), you will share in proportion to your mineral interest minus monthly costs on the well. The math works out in your favor. For instance: you and your neighbor have the same size lot next to each other and ya'll are approached to lease your lots for a 1000.00 bonus and a 25% royalty. Your neighbor leases and gets a 1000.00 bonus, then they get a monthly royalty check for 100.00for the life of the well when the well produces. You choose not to lease and you don't get your bonus or a royalty, but once the well pays off (4-5 months)its drilling expenses, you get 100% of the value of your minerals minus your portion of the monthly costs. So if your leasing neighbor is getting 100.00 on a 25% royalty, you would get $400.00 minus about $20-30 in your portion of the monthly costs. If I am wrong on this then please comment.

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Permalink Reply by WJP on August 10, 2008 at 13:29

I don't have any idea if your monthly cost figures are right, or if your projected pay-off of the drilling costs are right, and that's why I want a bonus. Too many ifs otherwise. If they put a well in the section and if it produces and if it is paid off in a short period of time. I'd rather have a good bonus now and invest my money now. Plus, I don't want to be an investor in a well, I wouldn't want to have to deal with whatever tax concerns there are, and I don't want to have to keep up with the possibility of ownership of the well changing and trying to figure out if I'm getting what I'm supposed to be getting. I believe those people who have said that it's a terrible headache for a normal landowner.

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Permalink Reply by reg on August 10, 2008 at 13:40

5 million cubic feet a day well = 5000 mcf per day
Gas sells for $10 per 1000 mcf so well produces $50,000 per day.
It takes 100 days to produce 5 million dollars worth of gas.
A well costs $5 million dollars to complete.
A well pays off its first $5 million in approxiamtely 100 days.
A non leasing landowner starts to share in the profits on the 101st day. Once you realize this, you will fight for a good bonus and a good royalty.
5 million mcf per day = 50,000 dollars per day in production.
there are typically 640 acres in these units. So, 50,000.00 is shared like this. $50,000 divided by 640 equals equals $78.13 per acre per day. If you have a 25% royalty, thats $15.63 per day per acre. So if you have 10 acres that $156.63 per day.
If your neighbor has 10 acres and they are in your section/unit and they don't lease, they will get the following from the 101 st day forward:
$78.13 x 10 acres= $781.30 per day minus monthly well costs. Once the well pays off the monthly expenses are minimal (10-15% max.)
This is a substantial difference.
If this is wrong please comment.
That's 4-5 months on average-- that's why our area is being flooded with money. These wells pay off 10 times faster than regular wells. If the well doesn't produce then you as a non-leasing landowner don't have to pay any of the the expenses and you only missed out on a small bouns. Louisiana Law is clear on this. Any expenses you pay are taken out your part of production--you don't pay as you go. Of course all of these wells will produce-- the barnett shale has had 10,000 wells drilled with NO dry holes. Their not all huge wells, but there have been no dry holes. You need to talk to an oil and gas attorney and not the land men when making a decision. The small acreage owner is better off not leasing-- the large one has a tough decision.

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