Has Anyone Heard ?

Has anyone heard anything about who is going to buy (or has already bought) the Ohio Utica Point Pleasant Shale Leasehold acreage up for sale by Chesapeake and / or EnerVest ?

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Permalink Reply by Joseph-Ohio on October 2, 2012 at 11:47am

Neither can I.

Someone out there should step up to the plate and enlighten us - and by us I mean more than just you and I.

Answers would benefit many.

 

Permalink Reply by paleface on October 2, 2012 at 11:50am

 Do you know how much it was selling for ?

Permalink Reply by Joseph-Ohio on October 2, 2012 at 11:57am

Not for sure, but back in mid September I read where EnerVest expected 6 Billion for most of it's Ohio Utica Point Pleasant Leaseholds.

Read also that 539,000 acres may be involved.

Works out to be an average of about $11,131.73 per acre doesn't it ?

 

Permalink Reply by Anastasia on October 2, 2012 at 1:23pm

That number is misleading if you think that is relative to the bonus that was paid or will be paid to a landowner.  That dollar amount includes the original bonus price, reimbursement to the seller for title expenses (which can be up to $10,000 per parcel), or any other expenses to date.  It's not a reflection of the value per acre of a lease - just a representation of the expense that the seller expects to be reimbursed for, with a little (sometimes a lot) gravy on top.

 

Permalink Reply by Joseph-Ohio on October 2, 2012 at 1:36pm

Nothing misleading about the number.

It's just a number.

There is truth to be found in math.

Nothing is mentioned suggesting how many dollars per acre any Landowner should or could expect is intended - that's the Landowner's business - it's only a presentation of a simple math exercise.

Landowners should bargain for as much as they can gleen from their deal with their developer.

The Landowners own the minerals until sold to the developer. 

The deal begins by the Landowner selling the minerals resident within the Landowner's lands.

As I understand it, in Ohio, no one makes money until the Landowner strikes a deal. 

You mention something about up to $10,000.00 per parcel for 'title expenses' ?  The way I see it, that would only apply if the developer chooses to pay that amount - and no developer would unless he expects to recover that investment and profit by it.  

Would it be smarter for Landowners to not do the simple math exercise ?

I don't think so.

Permalink Reply by Joseph-Ohio on October 2, 2012 at 11:46pm

"It's not a reflection of the value per acre of a lease - just a representation of the expense that the seller expects to be reimbursed for, with a little (sometimes a lot) gravy on top." 

I disagree - since "the value per acre of a lease" and the "signing bonus" are exactly a part "of the expense that the seller expects to be reimbursed for, with a little (sometimes a lot) of gravy on top."  they are also exactly a part of the "reflection of the value per acre of a lease"  !

Permalink Reply by Anastasia on October 3, 2012 at 1:16pm

It's just a part of it - the point I'm trying to make is that the fact that any company receives X dollars for their acreage doesn't necessary relate to how much per acre a landowner should be getting for a lease.  Yes, title expenses can be upwards of $10,000 and that's paid before a lease bonus is paid.  So the seller wants to recover his bonus expense, his title expense, his broker expense, his company's G&A expense, AND he wants profit.  So of that $11,000 per acre you estimate Enervest is being paid, only $3000 of that could represent what the actual lease bonus might have been.  Your house might be worth $50.  I buy it for $50, remodel it, put a new roof on it, get the foundation leveled, and sell it for $300.  It was not worth $300 until I put the additional work into it.  Same goes for companies who are selling oil and gas interests.  The lease bonus was $500.  I paid my broker $200 to get you to sign it, I paid a title company $1000 to see if there are any title defects, I paid another broker $1000 to fix those title defects, and I paid my staff $5000 for process all the paperwork involved in all of these transactions.  So I sell it for what turns out to be $10,000 an acre.  The lease bonus per acre still only has a value of $500.  

 

Permalink Reply by Joseph-Ohio on October 3, 2012 at 1:47pm

I certainly understand what you've written and I do not begrudge a business turning an honest profit - but not to the point of beating up the source of income (the landowner) and damning the deal making process.

For information, landowner cognizant Gas & Oil Leases in our near geographic vicinity have been written very recently contracting to pay Landowners upwards of $4k per leased acre and  18% net royalty.  Based on this recent history, and from our landowner perspective, there seems to be adequate room for an honest profit to be earned by the seller of a leasehold between the $4k per acre paid to the landowner as signing bonus, an 18% to 20% net landowner royalty and an $11k per acre transfer sell price. 

I'll go as far as to write that anyone who doesn't see it that way may very well have something up their sleeve / blowing smoke. 

Permalink Reply by Joseph-Ohio on October 3, 2012 at 1:51pm

.........exactly a part.

Permalink Reply by Anastasia on October 3, 2012 at 4:28pm

I understand your perspective, but it's just not that simple.  Absolutely, most oil and gas companies make big profits.  Generally. And they don't pay enough in taxes.  But there is also an enormous amount of risk.  The cheap nat gas prices of the last couple of years have put a lot of small and medium size companies out of business.  It can cost $7 to $10M to drill a well which may not produce anything.  You don't get that money back.  Big companies that have diverse assets can absorb the costs better.  The bonus payment is simply not the only thing the oil and gas company is paying for when they sign up a landowner (again, except for those flippers).  They pay for the broker (and day rates for landmen, I'm sorry to say, run from a low of $375 to $500 for experienced landmen) to do the signing (and they pay that whether they are signing 1 lease a week or 5 or 20), the title company fees, the attorney fees, yada yada yada.  It's expensive.  When they put their properties up for sale, it's not just the bonus they want to recover, it's all the expenses that were involved in procuring that lease.  The bonus is just a starting point. 

PDC came out and said they didn't get good offers on their acreage - I heard from a couple of people (and yes, its an unverified rumor) that they simply were expecting to get way more per acre than it was really worth.  So they are just going to drill it themselves. 

All things being equal, there's plenty of money to go around for most everybody.  It will take some time before anybody knows if the investment in the Utica is going to pay off, but here's hoping it's a good thing for everybody involved. 

Permalink Reply by Joseph-Ohio on October 4, 2012 at 12:44am

smoke

Permalink Reply by Joseph-Ohio on October 4, 2012 at 12:41am

smoke

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