Eclipse-Oxford leases and extensions in Guernsey County

I am a landowner in Guernsey County with a 4 1/2 year old Oxford lease that is set to expire in about 6 months.  I, and apparently many others, have just received an offer from Eclipse to extend the lease for 3 years for a generous one time payment of $100.00 and the same 12 1/2%  royalty (but no line charges).  The extension provides for the grouping of 640 acres instead of the 160 acres in the old leases.  I had hoped that Eclipse would treat the landowners fairly, in contrast to the Oxford way, but apparently not.  The landman, who called me, reminded (threatened?) me that Oxford (now Eclipse) is still drilling its shallow wells to hold them by production.  According to the DNR records almost all of these shallow wells have only the tiniest of production of oil or gas or sometimes only salt water or nothing.  My neighbors tell me that Oxford comes in, sets up a small rig and drills for a few days and leaves.

 

One leverage the landowners have by not signing the extension is to deny Eclipse the right to put together the necessary 640 acres to drill a deep well.  If enough people do not sign the extension maybe we could get a realistic offer. 

 

Has anyone on here received a similar extension "offer"?  Is anyone actually signing these things?  Does anyone know of any law suits or other methods to stop this bad faith drilling of the shallow wells?  

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Permalink Reply by maag man on January 15, 2014 at 4:01am

The Biggest Company You’ve Never Heard Of

| 13 Jan 2014   info released this week that you don’t have access tooooo

What does Marquette Exploration, Oasis Petroleum, Petrohawk Energy, Plains All American Pipeline, Marlin Resources, Halcon Resources, Peregrine Oil & Gas, Phillips Energy Partners and Venado Oil & Gas have in common?  They are all funded by the same private equity company, EnCap Investments L.P.  I think it’s important for land professionals to understand the financing side of the energy business, and EnCap’s investments have a more significant effect on our industry than many realize.

The Company

EnCap was formed in 1988, and over the years has raised over $18 billion dollars towards funding independent oil & gas companies in the United States.  The company has been through a number turbulent times in various energy price markets, and has managed to be one of the most successful private equity companies in the energy  space.  EnCap’s management team is proof of their success, the 4 managing partners have been together since before the company was founded — and the partners have been with the company an average of 13 years (with an average of 22 years in the oil & gas industry).

EnCap holds it’s midstream projects under a different company, EnCap Flatrock Midstream, the management team of Flatrock also boast similar statistics in regards to industry experience.

The Process

You can tell quite a bit just from reviewing EnCap’s website, they have a list of all their current investments and completed investments in the Upstream Portfolio and Midstream Portfolio.  One thing you quickly notice is that after companies are sold, you’ll see EnCap funding a new company with a similar name (like Common Resources, and Common Resources, III).  What isn’t readily apparent is that management teams of many of the firms “Realized Investments” form the management teams of their current investments.  They place a high value on people, and we all know that talented people make our business run.

For an interesting read you can check out this Reuters article: EnCap-Backed Cordillera Energy Explores Sale for More than $3B

You’ll see that EnCap backed Cordillera’s management team 3 times and Cordillera was sold 3 times — the first in 2003 for $250mm, the 2nd in 2008 for $1 billion and the third in 2011 for $2.85 billion.  Not a bad performance history for the management team over 8 years.

You won’t find much in the press quoting EnCap management directly, and that’s likely because they don’t need any publicity.  It doesn’t appear they’ve had any trouble raising $18 billion in 17 different investment funds over the years.  The last fund that closed was in February 2013, and the $5 billion in funding available was “significantly oversubscribed”.  In the linked article Rober Zorich, one of the managing partners is quoted:

“Our existing investors’ strong support of Fund IX resulted in a very quick and very successful fundraise.  We’ve had the good fortune now of having our last three funds heavily oversubscribed, and we couldn’t have done it without the longstanding relationships we have with so many highly respected limited partners.”

Another interesting item you can glean from reviewing the companies that are funded and some general industry information is that EnCap backed companies run incredibly lean from a staffing perspective.  Many of the companies expend as little capital as necessary on labor.  One can assume this is a partial result of the heavy influence of EnCap on the board of these companies.  It’s also known that you won’t make an eye-popping salary working for an EnCap backed company, and their stance on staffing should help you to understand why — the more money you spend on labor the lower the profits are.

That’s not to say that professionals who work for these companies (and the management teams) aren’t compensated well, employees know that they will be rewarded handsomely when the company sells.  Notice I said ‘when’, not ‘if’.  EnCap is in the business of building companies and selling them for a profit — and they are good at it.

 

Note from Mick Maag…   if you think you wish to sell to Eclipse/Oxford...   Encap is who funded Eclipse’s Purchase of Oxford.. So as long as they shore up acreage… It WILL BE FOR someone else  to purchase it.. you will keep hoping that you may make some money..… ..   good luck in getting a drilling package that will make you money..     It is all based on THEM creating a company that can be sold…    We have created many other options for people leased with Oxford and am paying them daily...

Permalink Reply by catt on January 24, 2014 at 10:30am

Does anyone think that some of the other oil companies who have joint ventures with Eclipse will help them drill some wells.......I wonder if Antero will joint venture on some of these wells?

Permalink Reply by evan on January 24, 2014 at 11:19am

They absolutely will .  They will almost have to in Alot of circumstances.  I know of a few people that had old Oxford lease and are gonna end up in a Gulfport unit. 

Permalink Reply by Tom on January 24, 2014 at 7:17pm

You are absolutely correct.  I don't care what anybody says on here about Eclipse and Rex hating each other.  They will be working together and probably already are.  I just signed a pretty good lease with Eclipse and the "proposed" pool they want to put me in will be mostly made up of Rex leaseholds.

Permalink Reply by maag man on February 7, 2014 at 3:57am

you will be flipped... only reason for signing..

Permalink Reply by Tom on February 7, 2014 at 5:25am

I don't care if it's "flipped" as you like to call it.  I don't care who owns the lease.  They can't change the terms of it, as long as I'm happy with the terms, I could care less if Santa Clause owned the lease.  I know for a fact that Rex is going to be drilling another unit probably this summer, and I''m 90% sure I'll be in it.  So Rex or Eclipse owning my lease makes no difference to me.

Permalink Reply by Philip Brutz on February 7, 2014 at 5:29am

Tom, my land is just south of the J. Anderson well.  Where is Rex drilling more wells?

Permalink Reply by Tom on February 7, 2014 at 5:39am

Mike, the Guernsey County ODNR inspector, told me in the fall the approx location of the new pad.  And from what I saw of the plat map when I signed with Eclipse it is the same pool judging by where the pad will be.  Mike told me that is was going to be to the North east of the J. Anderson pad.  And that they were going to be cutting the road in across the hilltops from the Anderson pad, rather than going back to a main road.  He said it is going to be the most expensive pad Rex has build to date because of the access road length and path.

Also, a landman from Rex told me before Thanksgiving that they were getting ready to start the unit and said it was mostly going to be Capstone Holdings land in the unit.  He dropped a few names of the people in the unit also.  And from that it sounds like the laterals are going to be going to the North West just like the Anderson Wells.

Permalink Reply by Philip Brutz on February 7, 2014 at 6:07am

Thank you Tom, please post any new information or rumors that you hear on the Guernsey county site.

Permalink Reply by harleyowner2003 on January 25, 2014 at 3:39am

I have a friend that was told the same line. They are not going to sign. So they drill the shallow well. No money there for Eclipse. They want to drill the shale. Someday they will have to ask you to sign an addendum. Then they will have to negotiate with you. A landowner group will give you more leverage. 

Permalink Reply by Gusher on January 25, 2014 at 2:09pm

be careful.....I was taking the same stand and they ended up drilling on the guy next to me 1 week before his lease expired and he is now stuck with the crappy terms. I talked to Chesapeake and a few others and they said if landowner does not sign addendum that they will just put each leg in a 160 acre unit. they prefer not to but will. I ended up negotiating a decent lease with Eclipse at the last minute to insure I was not stuck with 12% net and all the other bad language. It was not as good as I could have gotten if they let my lease go but far better then letting them drill 1,000ft and flip lease to Chesapeake, in my area Chesapeake is drilling this summer so Eclipse does not need to make the well productive, just needs to spud well and hope its in a unit within 12 months

Permalink Reply by BIG on January 26, 2014 at 3:42pm

I think Chesapeake has already drilled multiple 160/acre units in Carroll County.  Landowners in Carroll never received money to amend a lease.  If you didn't sign they just pooled you in a 160/acre unit.

The ODNR is looking at cutting the spacing down between the wells too.  If that happens you might as well forget about getting any money for amendments.  The oil and gas companies will not need you to amend.

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