New tactic by gas companies?

A coworker has 270 acres 25 miles west of Wheeling WV.  He's in the wet gas region of the Marcellus shale.  Anyway, his lease is going to runout in 10 months without activity.  He got a call from his lease holder, name unknown to me, offering him $14K per acre to buy his whole royalty out.  He said maybe for $30K an acre he'd think about it.  Apparently the drilling companies are taking advantage of the fact that the Marcellus region is populated with a lot of old folks who need money now rather that wait.  I don't know if this is a new tactic or not.  My coworker is only 35 years old so he is not inclined to take the deal but I bet there's plenty of folks who will.

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Permalink Reply by Kelly Fink on February 4, 2012 at 4:26am

I agree! If someone wants to come and give me 14K per acre for my 405 acres.....color me GONE!! lol

Permalink Reply by Leonard F. Davis on February 2, 2012 at 4:58am

I have 78 ac in Marshall co & was offer $3,000 per to buy the land. I guess they figure I am a old fool.

Permalink Reply by Steven A Joliat on January 27, 2012 at 10:58am

Using the calculations on the Ohio Survey webpage from the The Marcellus and Utica Shale Plays in Ohio document and making some possibly wild assumptions with Utica thickness ranging from 40 to 300 feet and TOC values between 1.5 to 2  you might be able to come up with a billion dollars worth of oil in place as a result.  Clearly only a fraction can be produced, and there are a lot of other risks in getting from A to B and then to the bank, but you can get an idea that while these offers can seem to be very generous they are tilted to the party waving the cash. 

2s72s0k9mm8gdPermalink Reply by 2s72s0k9mm8gd on January 27, 2012 at 11:28am

Sounds like those whose leases are at risk of expiring before being drilled into a unit are being courted.

If O&G is facing re-bonus lease situations perhaps they figure they may as well try to buy them outright for a few bucks more and be done with it.

Seems apparent to me that we are sitting on more wealth than we are led to believe! Unless I was 80 or dying from cancer , I wouldn't even entertain the thought of selling. Especially now.

With several cracker plants wanting to be built in the tri-state area , what's that telling us..?...$$$$$$$....!

Permalink Reply by Brian Day on January 27, 2012 at 12:03pm

Because of the unit or pool system, when it comes time for the lease to run out, you are at the mercy of what your neighbors have already decided upon the offers made two years previously.  If a high majority take these early offers, vertical wells will be drilled without any pipeline near, just to hold all of the leases.  This will happen so fast your head will spin.  I would suggest you and your neighbors get a negotiator and try very hard to stick together for the best deal.  Some individuals always think that they have better bargaining talents than a negotiator and resent paying his/her fees.  the individuals think they can cut a better deal for their little plot of land.  this is eldom the case.

Permalink Reply by Finnbear on January 27, 2012 at 2:29pm

270 acres 25 miles west of Wheeling WV? That puts him at about Fairview on the border of Belmont/Guernsey County, OH - correct? That is in the wet gas portion of the Marcellus but it is also on the border of the wet gas/oil region of the Utica Shale. Two years ago you could have bought most of both counties lock, stock, & barrel for that $14k/acre and people would have been lining up and climbing over each other to sell it to you at that price. That is almost 3.8 million dollars and he'd still own the land. He must really like his job!

PS - if that company is really buying in that area, I have 155 acres available. I'll take their 2.17 million today if they can pay up.

Permalink Reply by Chartist on January 27, 2012 at 3:04pm

yeah, he said he's in the Utica portion.  He knows he's got something special....Good thing for him is, he's been rich a long time and is not impressed by $4MM. 

Permalink Reply by Finnbear on January 27, 2012 at 5:50pm

$4 million is a hell of a return on land that wasn't worth a half a million 5 years ago, no matter how rich you are. Its a gamble that multiple wells actually get drilled and produced on those 270 acres in the next 20 years or so. The time value of money on that 3.8 million over 20 years is???. It would not be a stretch to double that 3.8 mill in 10 years and double it again in another 10. That's 15 million with very average returns and you could certainly do better.

Permalink Reply by FXEF on February 3, 2012 at 3:30pm

Jim,

What exactly is he selling, royalty or O&G mineral rights? I may be wrong, but if he sells royalty and and no well is drilled and the lease expires then there is no longer any royalty. The royalty is tied to the lease. He still owns the O&G minerals and therefore could lease again.

Permalink Reply by Finnbear on February 3, 2012 at 5:54pm

The real question is how could he have leased at $6700/acre and 18% and have the lease expiring in 10 months? That timeline doesn't work with what has happened in Ohio. Leasing only hit $5k/acre last fall. Think about that a while I go find my BS meter.

Permalink Reply by Chartist on February 3, 2012 at 11:11pm

Apparently, he's not selling anything as they didn't offer him enough money.  But, they offered $14K for his mineral rights per acre.

Permalink Reply by Finnbear on February 5, 2012 at 2:34pm

Who are "they" who offered $14k/acre? I'm sure that many people in SE OH would like to look at that deal.

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