Comment

Comment by rex roae on July 10, 2012 at 1:45pm

Dave, I'm thinking if CX could get me $3200 - $3500 an acre after their 6% commission, that would be a better deal for me.  Would probably still retain the shallow rights which have value as well as no deductions from royalty plus other landowner protections from what I've seen of their past deals.

Just not so sure I want to wait.  Who knows when CX will strike a deal and for how much.  Just don't think our area is as valuable because of the shale thickness compared to other counties and I'd hate to turn away good money that's here now.

Keep going back and forth.

Comment by Dave on July 10, 2012 at 1:01pm

What are peoples thoughts on the lease given by Appalachian Land Services? 

Comment by Sam Douglass on July 9, 2012 at 3:17pm

Divide and conquer -- with many groups and individuals --

October 11, 2010 Paid Up Oil & Gas Lease Form

The following remark was made by the CEO of Chesapeake at the
Chesapeake Energy Corporation at Meeting October 13, 2010  http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c...

"I don't like to buy acreage for fair price, I like to go in and put a play together where we put our army of 5,000 landman to work, and we are buying it lease by lease for a very inefficient cost average to the rest of the industry to try and replicate and we make it a transaction where there is not a public market, it's us and the landowner, and we're gonna most generally going to get the benefit of that side of the transaction, so think about again, every time we move we are buying acreage worth 5 to 10 times what we pay"

Aubrey McClendon  Chesapeake Energy

I [not this sender] have been asked repeatedly about what should be included in a oil and gas lease. As I have said like a mantra in this blog, I am not an attorney and I don't offer legal advice. With that caveat emptor said, the Paid Up Oil & Gas Lease form below covers many of the things a good lease form incorporates. I was furnished the lease form with no strings attached and no obligation not to disseminate it. I don't know if it is suitable for you or if fits your needs, but the lease form covers a lot of areas that landowners urgently need to address in any oil and gas lease they might ultimately sign.

  Beware; the oil company will try to get you to sign their lease form which denies you many basic oil and gas rights that you need to protect.

  When you take the oil company oil and gas lease form to your attorney he will charge you expensive billing hours to review the lease and he will probably amend it by including many or most of the provisions found in the sample lease form below.

  One of the more insidious ways the oil company maneuvers during negotiations is to get landowners to run up large legal fees to wear them down. If you will take the time to know and understand what needs to be incorporated in a good lease form in advance, you are then empowered to negotiate the three most important parts of a oil and gas lease, the lease bonus amount, the royalty amount, and the way your land will be used, referred to as a SUA or surface use agreement.

    Learning to comfortably handle your own negotiations will save you a lot of money and give you a good idea in advance whether the oil company is making a serious offer or not. Oil companies are notorious for making offers and then withdrawing the offer or making a substitute offer after you believe you have an agreement.

Don't get in the lawyer trap and wind up having to sign a bad lease because you ran up a big legal bill and find yourself in a weakened condition. Understand up front that the oil company does not play fair.By all means have your oil and gas lease reviewed by a competent oil and gas attorney prior to signing it.   PAID UP OIL & GAS LEASE

Comment by Lauren on July 9, 2012 at 2:22am

When looking into your options, another group to consider is CX-Energy:

Crawford County Landowner Group

Please join us for an informational session regarding this group: Tuesday, July 10 and Tuesday, July 24 2012 at 6:30 p.m.

Vernon Central Hose 1658 McMath Ave Meadville, PA 16589 Thursday, July 12 and Thursday July 26, 2012 at 6:30 p.m. Linesville VFW 6913 SR 3014 Linesville, PA 16424

For questions regarding this group email Crawford@cx-energy.com or call us at 724.933.1311.

Comment by Bob Jenness on July 8, 2012 at 4:22pm

So, as a landowner, I now know I'll have to say "no" to a lot of lease proposals to get one that's not essentially selling my mineral rights at a big discount from fair value, and that may take more time than I have left.  I'm really glad I'm part of a large acreage pool so that at least when we all say "no" the first few times, there might actually be someone listening.  I know from several car deals that saying no and heading for the door is the most effective to better a deal.  Further, I read an article about life in Williston, in the Bakken region today, and it adds a view of the realities of environmental and cultural effects of "oil boom" on small, economically marginal communities.  We also have to make sure that aspect is addressed in our leases.

Comment by Bob Jenness on July 8, 2012 at 4:11pm

Sam, 

Regarding "A lease is a sale"...

This goes back to the unitization problem, doesn't it?  If the lessee creates very large units, then drills only a small percentage of each unit, they're effectively holding the remaining large percentage free of charge as long as they can produce.  Lease language needs to address this near-fraud by requiring lease renewal and delay payments prorated based on the percentage of land not actually producing.  Either that, or the lease must require the lessee to actually have a solid drill plan to bring ALL leased lands to production during the lease interval.  I know at least one group in Lawrence had such a plan in hand before they offered the lease to their landowners.  

Comment by Sam Douglass on July 8, 2012 at 2:41pm

See:  http://eaglefordinfo.blogspot.com/

Saturday, March 17, 2012

Oil & Gas Operators Took Advantage Of Eagle Ford Landowners

In case you haven't noticed it the price of crude oil has been on a tear lately, trading steady well above the $100 a barrel mark. That's both good news and bad news for Eagle Ford landowners. The good news is that when wells are produced landowners will receive nice royalty checks. The bad news is that the Eagle Ford Shale requires such intensive drilling on such tight spacing to extract all the oil in place that it will require many decades to drill and produce it all.

Experts predict that it will take perhaps 40 to 50 years. A little know fact is that most oil and gas leases do NOT provide any shut in royalties or delay rentals for oil wells. With rare exception, "Delay Rentals" are for the most part reserved for gas wells only.

Few in the oil industry talk about the fact that there are so many thousands of wells to be drilled that the majority of those wells won't be developed for decades into the future. Equally depressing from a landowners point of view is the fact that as the Eagle Ford is developed many wells will be shut in for ages due to lack of pipeline capacity. Despite the growing number of pipelines being constructed there will not be enough capacity to carry the vast quantities of Eagle Ford crude oil to refineries in quick order.

There will be hundreds of thousands of acres simply held by production with very few wells drilled on many production units for the foreseeable future. There quite simply are over 30,000 additional Eagle Ford wells to be drilled and that will take many decades.

This predicament will inevitably lead to the dilemma that many landowners, wishing to to monetize their acreage, will have to either sell their royalty interest at huge discounts to the vultures who trade in these financial transactions or see their future production go to their heirs. In any event, there is little chance that the majority of wells drilled to date, or that will be drilled in the near future, will be flowed and produced at capacity any time soon.

The oil companies strategy is quite simply to use the enormous Eagle Ford reserves being developed as a hedge against currency debasement. If the experts are right and crude oil continues to rise, the Eagle Ford Shale will turn out to be the "steal of the century." The technology to exploit shale is relatively new. When it was developed and proved capable to crack the code of tight oil and gas shale’s that opened up enormous previously known areas with excellent source rock hydrocarbons.

Like a thief in the night, big oil and gas operators moved into the Eagle Ford Shale and leased up acreage on the cheap. They knew it was rich in hydrocarbons and too big to be developed by a single company. They then set out to carve out their areas of interest and then proceeded to lease that acreage for practically nothing. Collectively they now own the premiere oil reserve in the US with the lowest finding and development cost.

To deflect criticism that they took advantage of landowners, operators bemoan that there is much risk in developing a new play such as the Eagle Ford. That contention is just PR intended to hide the fact that they took advantage of landowners.

Comment by Sam Douglass on July 8, 2012 at 2:40pm

Eagle Ford not Marcellus-Utica etc. but some lessons ---

http://eaglefordinfo.blogspot.com/

Option Value of Eagle Ford Acreage   May 20, 2012
Understanding The Option Value Of Eagle Ford Oil Window Acreage: Why Leaseholds Are Worth Over $100,000 Per Acre

Oil company leaseholds create instant value. By way of example, in the Eagle Ford Shale Chesapeake Energy was a late leasing entrant with their first leases acquired in November of 2009 and reached 300,000 net acres by March 2010, and later reached 625,000 net acres by October 2010 having invested $1.4 billion in leaseholds. Chesapeake later sold 200,000 net acres for $2.2 billion, leaving 425,000 net acres and 2.3 billion Boe possible to Chesapeake at a negative cost of $800 million. By obtaining cheap leasehold interest it created $7-10 billion.

Leasing (in fact a lease is a sale) is simply a very cheap way for oil companies to buy oil options for future production. Leasehold investments are no longer risky in the traditional sense as conventional oil and gas drilling were in the past. Today, shale oil and gas represent a very cheap option on a know resource. Using Chesapeake Energy provided disclosure, at $2,200 per acre (CHK cost), a Chesapeake Energy Eagle Ford acre overlays  a minimum 5,000 bbls of recoverable oil. That's an option cost of =$.40/barrel plus $15.00 to develop it. Meanwhile, a financial option on oil (a call) sells for =$20.00/bbl (at strip prices covering 2015-18). McClendon asks if it is smarter to buy a call option on a barrel of oil at $20/bbl where the strike price =$90/bbl for an all-in cost of $110/bbl, or is it smarter to pay $.40/bbl and a $15/bbl "strike" price for an all-in cost of $15.40/bbl?
    Chesapeake Energy brags their developments costs is $10-15/bbl which is effectively the strike price of this option

The CEO of Chesapeake Energy Aubrey McClendon famously asked the question "where else in the world, in any industry, cay you buy an asset for $1-1.5 billion and have it become worth >$5 billion within one year? Nowhere!" In no other industry are sheep led so willingly to the slaughter. Hydraulic fracturing along with a plethora of other new drilling and completion technology has changed the face of the oil and gas industry.

The Estimated Ultimate Recovery of all Eagle Ford Shale wells continues to go up substantially through down spacing, making it impossible to predict with any certainty how much above $100,000 per acre we will see. One thing is certain though, we are very early in the game and recovery factors are being improved by leaps and bounds.

 

See:  http://eaglefordinfo.blogspot.com/

Comment by warjr on July 8, 2012 at 2:09pm

Yeah, I am wondering the same thing.   Do we have any examples of what to expect or what is a "good" lease floating around out there?

Comment by rex roae on July 8, 2012 at 12:25pm

Besides the bonus and royalty, this lease doesn't sound all that hot. 

Wonder if they'll negotiate on the gas storage and deductions.

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