Very surprised at Marcus on this post, on one hand sounds like a reasonable strong argument, then I start counting REAL billions pouring in and Supermajors planting flags and then I say NY Times or BILLIONS of dollars.
Guess what I follow?
They reported facts about who invested with whom, investment costs and the connections that exist in order to make such investment happen. Anyone in the world could have written that article and found pretty much the same thing. Some of you people still seem to think that because bias exists at a newspaper no real reporting can be done nor truth can be told. That's frustratingly myopic.
Thanks for your thoughts, Marcus.
Yes, as with any commodity, snapshot profitability is directly tied to price swings on the trading floor. This article simply points out that, with depressed prices, profitability is also depressed (submerged?? LOL).
While I am certainly no expert in this industry, I have had 43 years of experience dealing with the industry (to greater or lesser extents, depending on which way the "wind was blowing" at any particular moment during that period. I also have some successful investor experience, not recently and mostly during the mid to late '70's with a firm call Ranger Oil. You might find the financial history of Ranger during that period to provide interesting reading, especially if you consider what a 10k investment in 1975 would have been worth by 1985, LOL.
However, there is nothing magical about the O&G business. The concept of "Perfect Knowledge" applies to this industry as well as it applies to all industries. And, as a result, the marketplace (including the market for investment capital) discounts the expected return on investment to reflect the volatility and uncertainty associated with the industry. So, while an ROI of 20% might be acceptable for, say, GE as they forecast the return, say, from buying a new manufacturing machine: an O&G company's Investors, stakeholders, common stockholders, etc., will demand a MUCH HIGHER ATROI of before they invest. I have heard (from upper management personnel at over a dozen world-class petro and petro-chemical companies) of ROI goals of forecasted returns ranging from 40% (to purchase existing, older wells) to as high as 2,000 percent (20x) for investments full of unknowns (seems like the political environment has been the factor that makes Financial Officers most nervous.) Remembering that it is the return on investment from a "Play" and not from an individual well that drives these investment decisions, here, again, I ask where does "mediocre, at best" come from?
Of course, investors assess all of the associated risks and balance them against the known assets.
Of all the assets associated with investing in an O&G play, there is, certainly, no asset more important than the TEAM OF PEOPLE who are expected to generate the investment return for the investors. And, of course, this team isn't of much value to anyone if it is not led by effective leadership.
One can certainly "raise his eyebrows" concerning some of McClendon's activities but you can be assured that he is an effective leader who seems to have the qualifications and the "style" necessary to lead his team along the path they have chosen. Given quantity and speed with which the many "deals" have been closed during the last year, my guess is that he is VERY HIGHLY THOUGHT OF by all classes of stakeholders in his business, from the International Investment bankers to his joint activities with competitors and right on down to the JV's with midstream partners.
"Numbers--actual numbers and not lofty estimates by snake oil salesmen--don't lie. The numbers for shale plays are bad."
I am left to believe that you have some secret source for data or that I have missed the information, somehow, in my reading of countless article that have come across the web during the last three years.
Anyway, I initiated this whole conversation because I thought you might be able to provide some facts so that we can understand why you have the thought that the Utica/Point Pleasant play is "mediocre at best".
Thank you, again for your consideration and fast response.
"I am left to believe that you have some secret source for data or that I have missed the information, somehow, in my reading of countless article that have come across the web during the last three years."
Well, what kind of numbers are you looking for? I have several data sets that show the hype vs. reality of most shale plays. I'm happy to send them to you via private message if you can give me a specific request.
"Anyway, I initiated this whole conversation because I thought you might be able to provide some facts so that we can understand why you have the thought that the Utica/Point Pleasant play is "mediocre at best"."
Well I have no idea where you got that notion but I can assure you I never said or thought such a thing. On the contrary the sweet spots (which I think have been closed in on but not fully defined yet) are going to produce very nice, solid profits for drillers and great royalties for landowners. However, there is no equality between land in a sweet spot (say NW Harrison county) and land in an area with no activity and little interest from real drillers (think N Ashtabula). To think that the geology between those two areas is the same is total folly. Shale plays contract. Period. Companies over-lease and then only produce from core parts of the play. This isn't new nor is it a subjective judgement. Total SA is no longer going to invest in dry gas shale because, shock, it's not profitable.
Larry, I get what you r saying but it depends what type of oil company it is and what price they are forecasting. A company funded by limited partners for example may make its operating income on fees assessed to investors, not on the production. Further in periods of bullish oil the competition for assets may drive companies to give bonuses to acquisition staff based on how much they spend thus incenting overpayment. In other cases the company executives make enough of a salary not to care about drilling risk. and then there are those who arrive late and delude investors that prices will skyrocket and so get in at any cost. it is easy to judge economics on a well. look at a three year payout or less. take the IP, multiply by 80%, and then multiply by the price and times 365x3
HERE SOME MAPS FOR U TO LOOK AT
Where are the maps??
Mike,Can you post the links to the maps you mentioned? Thanking you in advance. Dan
I am wondering if some of the prices I am hearing about are for mineral rights, and not just a lease, meaning if the mineral rights are sold that means the energy company would not have to pay a royalty, and would not have the risk of losing the lease. I have heard a rule of thumb number that mineral rights are valued at 3x bonus prices being paid.
Secondly, on some of these deals I am wondering if they are not flat out selling the entire parcel... surface and minerals.... timber, crops, water.. .everything.
And, thirdly on some of the deals between say a Chesapeake and Total...if I recall and am interpreting things correctly.... Chesapeake is selling a stake (minerals or leases?) in the acreage for a share of the interest in the acreage plus compensation for drilling. Thus, the price per acre is for more than the just the lease or minerals, it is also payment in advance for Chesapeake's to do the actual drilling.
Thank you in advance for any comments. - Werner Kostendt