Snyder Brothers Marcellus Lease
Has anyone signed a marcullus lease with Synder Brothers? How did you make out? Are they paying the upfront payment fairly quickly ?
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Permalink Reply by Sam Douglass on
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Pardon --- the 0 is by the 9 on my little machine. I meant to say 20%.
It is based on what a few clients of mine have negotiated - most have accepted less, but patience is rewarded. It is also based on Google of Barnett shale where landowners are unhappy because the going royalty has dropped from 25% to 20% when the price per mcf nose-dived from $16. Marcellus is better than Barnett.
Notwithstanding the fact that them Marcellus is otherwise a better deal for producers, they are ecstatic that landowners are willing to give operators cheap leases.
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The only problem is that there is so much of it it may take a while
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The last lease I saw submitted by Snyder Brothers a couple of months ago was a 1/8th royalty and the lease was totally one sided for the lessee. If the lease is currently more limited, that is excellent. Hopefully the lease forms are a little less one sided as well.
A lot of people are accepting 15% and if they want to make deals at that level I have no argument. Maybe they need whatever bonus money is being offered. However, some in WPa have obtained 20% and more with patience. It also helps to put together a large group with more bargaining power. The guy with one acre is not likely to get 20% in a hurry - particularly when reserves are being acquired for development 10 or more years from now. I agree with you that there are millions of acres to choose from.
The reason companies keep on leasing even though they have enough acreage now for operations into the forseeable future l is they can lease it now on the cheap.
Assembled acreage is being traded between companies for 10, 12, 14 thousand dollars and acre. Admittedly the assembled acreage is worth more than individual tracts on a per acre basis. Cheapeake announced that it believes its acreage to be worth between $30,000 and $40,000 an acre. Range claims in press releases that each of its acres is worth more that $56,000 - probably a little puffing but there may be some truth.
It does not take much Googling to find that folks in Wyoming County Pa put together acreage ang got acre bonuses of $5750. Neighboring counties in that area have done well also. The royalty is 20% and its 20% with the market enhancement clause that says no deductions for transportation or anything else between the wellhead and the point of delivery to the transmission line except money spent to increase the selling price of the gas. The last lease I saw from Snyder did not have that clause, but maybe that has changed as well. The big question is what is the royalty calculated against and the market enhancement clause might be worth a couple percent of royalty. I can not begin to guess what 15% of "value" might mean [which is the word used in some company leases]. My guess is the companies do as some do on their tax returns and take as many deductions as they think they can justify.
The Wyoming County leases were also 10 years except that if the company decided it wanted the last 5 years it had to pay another bonus of $5750.
I do not know whether Snyder is drilling horizontal wells or not. Vertical wells are good to test and confirm seismic so that a package can be put together and sold to the guys with the big money who will likely do the development.
As I said, I am glad Snyder has improved its deal since I last saw it. I had a guy pretty mad about what he signed up for. And no, I have not seen the current form and offer.
I stand by my statement that everything I read says the Marcellus is worth more than Marcellus and other shale deposits. One of the big factors is proximity to Eastern markets.
I stand corrected if all you are leasing is the Marcellus. Most of the leases I see include everything possible including coal bed gas and storage rights.
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Permalink Reply by Keith E on
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Mike,
I have read your comments on this thread and I know this is pure speculation, but from your contacts in the industry, are you saying you believe you can get at least 8K/acre in this land deal? I know the floor is 5K but you honestly believe the ceiling could be 14K?
Keith
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Permalink Reply by Keith E on
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Mike,
You don't think that having too many acres for sale will lower the bid? If 3 to 400K acres are lumped it would take a major player to bid even 8K. I guess there are Saudi Princes out there with oil money to bid. So, maybe you are right.
Keith
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All the real bidders on this stuff are major players. The acreage you describe is no problem. The bidders will be drooling.
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Permalink Reply by Interested Party on
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Sam,
There is a depth clause in the MDS/Snyder lease addendum that reads: "This lease is limited to any and all subsurface depths, intervals, formations, strata, and/or areas below the top of the Tully Limestone formation to a depth of 500 feet below the base of the Marcellus Shale formation, together with and including any and all oil and/or gas located or found therein or produced thereby or therefrom."
So actually, this excludes shallow gas in the Venango/Bradford Group of the Upper Devonian, and the Utica Shale which can be 4,000ft below the Marcellus Shale. The Tully Limestone is in the Middle Devonian (below the shallow gas).
http://pubs.usgs.gov/of/2006/1237/pdf%20tables/table2.pdf
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See:
Thu, Jul 1 2010 By Jon Hurdle PHILADELPHIA (Reuters) - Is there even more natural gas than thought encased in the rock below Pennsylvania?
The state that is already estimated to have enough gas in its Marcellus Shale formation to meet total U.S. needs for a decade or more may have additional reserves trapped in geological strata above and below the Marcellus, some energy companies believe.
Test wells sunk in recent months have yielded promising quantities of gas that may indicate major new reserves of a fuel that would reduce carbon emissions, cut U.S. petroleum imports, and generate thousands of jobs.
If confirmed, the new fields would also be economically attractive because they could be exploited by gas rigs that are already drilling into the mile-deep Marcellus, a rock belt that runs from Virginia to New York and extends under Lake Erie to Canada.
One of the fields, the Utica Shale, has already generated interest in the Canadian province of Quebec where a number of horizontal test wells have been drilled, and that optimism is spreading to Pennsylvania, birthplace of the world's oil industry in the mid-19th century.
Range Resources Corp., a Texas-based gas driller that is active in the southwestern Pennsylvania portion of the Marcellus, said it has successfully tested two wells, in the Upper Devonian Shale above the Marcellus, and the Utica, below it. It plans to release more details in the coming months.
"The results are very promising," Range spokesman Matt Pitzarella wrote in an email. "Even though it's still very early, the prospects are very good, indicating that either of these formations could be stand-alone gas fields."
The wells used the same horizontal drilling technology coupled with hydraulic fracturing that together have enabled a boom in development of the Marcellus, a field underlying two-thirds of Pennsylvania where the industry expects to drill some 5,000 wells this year.
Gas from the vast Marcellus Shale is particularly profitable for producers because it is high quality and close to the populous northeastern United States market.
Terry Engelder, a Pennsylvania State University geologist, estimates it holds 489 trillion cubic feet of gas, enough to meet total U.S. needs for about 20 years at the current national consumption rate of some 23 trillion cubic feet a year.
Neither Engelder nor energy industry experts have formally estimated Utica's reserves. CIBC analyst Andrew Potter said 50 trillion cubic feet of recoverable gas was a reasonable estimate for the Quebec portion of the formation.
Since the new shale plays are in the same areas as the Marcellus, they could be developed from existing well pads, cutting costs and reducing environmental damage from the extraction of more gas, Pitzarella said Engelder, whose Marcellus estimates helped spark the current drilling boom, said the Utica and other shale formations may not contain as much gas as the Marcellus but are still attractive to energy companies because they can be exploited with existing equipment.
"The Utica doesn't have to be nearly as good as the Marcellus to be economic because we already have the infrastructure in place," Engelder said.
The Utica Shale, which covers much of the same geographic region as the Marcellus, in addition to its portion in Quebec, is also being targeted by East Resources Inc., which is already active in the northern Pennsylvania section of the Marcellus.
The Upper Devonian Shale, of which the Marcellus is a part, underlies Virginia, West Virginia and Kentucky as well as sections of Ohio and Pennsylvania.
East is preparing to drill test wells in the Utica Shale this year and believes the formation could contain as much or even more gas than the Marcellus, said Paul Dudenas, the company's manager of corporate engineering.
East agreed in May to be bought for $4.7 billion by Royal Dutch Shell, which is seeking shale-gas assets.
Preliminary drilling of nearby formations indicates the Utica geology is similar to Marcellus. Dudenas said that justifies $7 to $8 million for a test well, twice the cost of a typical Marcellus well.
Still, experts have yet to publish estimates for the wholesale gas price at which drilling in these shale formations would be profitable.
Utica is around 4,000 feet deeper than the Marcellus, so the economics of extracting gas from the new formation could be challenging even if existing infrastructure was used to reach it.
But a major new reserve could become much more attractive if the market price of gas rises significantly above Wednesday's $4.53 per million British Thermal Units for benchmark Henry Hub gas, a relatively low level that has prevented even faster development of Pennsylvania's gas resources.
The potential of the Utica is such that it would be worth exploiting independently of the Marcellus development. "If the Marcellus didn't exist, we would still be drilling the formation," Dudenas said, referring to the Utica Shale.
In northeast Pennsylvania, Cabot Oil & Gas Corp. recently completed a successful test well into the Purcell Limestone, between the upper and lower Marcellus levels.
The well yielded a 30-day average of 7.3 million cubic feet a day, indicating the Purcell reserve may contain significant quantities of gas, Cabot chief executive Dan Dinges told a conference call in February.
(Reporting by Jon Hurdle; Editing by Alden Bentley and Dan Trotta)
© Thomson Reuters 2010. All rights reserved. http://in.reuters.com/article/idINTRE6604EZ20100701
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Permalink Reply by Interested Party on
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Have read that article previously. As I said, the MDS lease EXCLUDES the strata below the Marcellus including the Utica, and it EXCLUDES shallow gas -- found well ABOVE the Tully Limestone. I am not pitching for or against a lease with MDS Energy but am merely pointing out what is in the MDS lease addendum. There is a definitive strata restriction. I don't know if there is a separate Snyder lease that INCLUDES all strata.
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Nice to know that target formations are limited. It was my impression that the Utica below and the productive shale above the Marcellus were closer - but maybe not. Talk to a nearby college geologist to get a better idea.
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Permalink Reply by PI on
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Mr. Knapp,
One question and point that has not really been addressed and which stands as the one obstacle to my signing with your lease is the deductions from royalties. What exactly are the costs associated with transportation? As was pointed out before, it seems like the deductions could be whatever the company can justify and get away with. How much are these deductions going to affect my royalty payments? The potential for a large signing bonus is enticing, but not if it's going to completely screw my royalty payments.
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Chesapeake and some others have not been making deductions for transportation, compression etc. Only costs that increase value of gas. You would need an accountant to tell you, but the deductions can be significant. Multiple deductions also make it harder to audit since you are not just working with sales slips to independent purchasers. Some companies have put a ceiling on the amount of deductions that will made - maybe 0.3% of sales price or 1.0 % or ??
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