Comment

Comment by Dave on May 26, 2012 at 10:12am

I would sell everything for half of that an acre.

Comment by Sam Douglass on May 26, 2012 at 8:29am

I think that anyone who can sell his gas right under a property today for $35,000/acre should give it serious consideration - with some limitation on the producer's surface use etc.

Comment by Bob Jenness on May 26, 2012 at 7:05am

I bet the producer will be convincing his investors that he can answer the questions.  A test of the fairness of any lease would be that the producer, his investors, and the landowners (or at least their negotiating team) have the same set of all known/estimated answers to the common set of questions.  

Similarly, If we consider the Landowner's capital asset as his (very long term) investment in the NG future, the terms, risks, and returns should be identical or just slightly preferential to those of the investors.  

When we sign the kind of lease you're describing, it seems clear that we're making an investment commitment to the producer of 75 to 100 year term, unless we're careful to craft a more flexible term.  

As a landowner, I always have the alternative to seek an outright sale.   If I can sell at the $35K in the thread headline, I could buy an annuity at current rates and be assured an eternal income of $300 to $1000 per acre at current rates, which are depressed similarly to NG at present.  Obviously, lease bonus will be above that line, and the integrated excess will have to carry us til gas prices and drilling come up to parity.  What do y'all think?

Comment by Jim Dickinson on May 26, 2012 at 6:54am

Heard there will be a meeting of the Western PA Gas Leasing Consultants, LLC
on Wednesday May 30... 7:45 PM... at The Hampton Inn, Meadville...

Claim to represent 8,000 acres in Crawford County...

Can't hurt..might help

Comment by Sam Douglass on May 26, 2012 at 5:14am

The discussions about E&P, equitable and value etc. are interesting but I am pretty sure even the producer will not be able to answer the questions when the land man is out there trying to lease for as low amount as possible.  The answers will change with changing circumstances.   Certainly the landman will not know the answers; the landowner is not likely to have much of a clue.

One can assume that if the landmen are there it is worth leasing and published maps suggest where wet gas and oil currently in vogue might be [dry gas is predicted to go to $4.50/mcf within a couple of years simply by slowing down the drilling - and absorbing rapidly increasing demand]. 

One can guess that drilling emphasis will stay with wet gas and oil for some time because of greater profits.  But the high price of oil has been predicted to settle out at in the range of $80/bbl.

There are oceans of unconventional gas all over the world to help meet demand and efforts at conservation are whittling demand.

One can assume that it might be 75 to 100 years or possibly more before the drilling in Appalachia runs out.

Probably the best thing to do is get as big a bonus as possible.  The Lessee is going to want all the strata [except the traditional shallow stuff] and the answer to some of this is that over a period of time Lessee loses the right to non producing strata.  Possibly better, Lessee starts paying a meaningful minimum royalty (to be credited against production royalty] after a certain point in time or loses the rights. 

Comment by Jim Litwinowicz on May 25, 2012 at 3:48am

Things have been crazy with lots of people signing up in Mercer Co. If you want to join our Crawford Co group, email me at landownerslease@hotmail.com

Comment by Bob Jenness on May 18, 2012 at 1:37pm

If everybody had precisely the same view of "equitable" and "value", no negotiation would be required to do a lease.  A few months ago, "landmen" were saying that equitable was at most 10% of what most think is equitable today.  Every prudent investor in every market works hard to understand values and equity of the investments they make, and those on both sides of the table almost always have different perceptions of both parameters.  If all participants are honest, no independent research or thinking would be required, either, but there's ample evidence that E&Ps and Landmen haven't earned that gift yet.  If we agree that the market is the ultimate arbiter, then we should openly post information such as I requested in the last post.  E&Ps rightly consider lease expenses as capex - i.e. the rent on the underlying capital to support production.  Mineral asset value per acre?  Anybody?...  Going twice:-)...

Comment by Jim Litwinowicz on May 18, 2012 at 8:23am

Your idea of "equitable" is different than that of an E & P.

Comment by Bob Jenness on May 18, 2012 at 7:54am

So, you'd like us (landowners) to believe that a rational estimate of the dollar value of the energy under about 40,000 acres of Crawford Co. is small enough that no reputable E&P company would make equitable arrangements to lease it for as long as it will take to bring it all to production?  What we need an E&P to agree to is that they can't lease about $2 BILLION of capital asset for just long enough to HBP it, then harvest it with small royalty payments for the next hundred years.  Our business target should be to earn a reasonable return on the asset each and every year until all the energy in all the formations is harvested.  Anyone care to post a good estimate of the mineral asset value for an acre of land, then the expected return for similar capital, etc...

Comment by Jim Litwinowicz on May 18, 2012 at 6:17am

While it is possible to compute the value and write a lease accordingly, you still need to get a E & P to agree to it and sign. In this area that is new and exploratory with out proven production numbers, I doubt any E & P would agree to such a lease.

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