Comment

Comment by David Hunt on December 12, 2012 at 3:12pm

Janice just wanted to clear up any misunderstanding and maybe it is me that misunderstood what you were saying but NWPA Landowner Group was at Nape And it is (North American Prospect Expo) in August 2012 with a booth set up representing our members in the Utica Shale, booth # 3711.  I heard CX. was there meeting with Halcon over the back out deal in Mercer but I didn't see in the show guide that you had a booth to represent your members. Did you have one and I just missed it? Anyhow if this is your first trip to NAPE you will enjoy the experience and you never know we may see you there!      

Comment by David Hunt on December 12, 2012 at 2:47pm

J. Rick I am with NWPA Landowner Group and not a huge fan of the for profit groups but I don't think you can bash CX for not trying to market your neighbors property that is not signed with them. I cant see any group doing this so the most important thing you as a landowner can do is get your neighbors all together and do the same thing if it is on your own, with CX., NWPA, or whoever, stick together. The other thing is what Sam mentioned about size and configuration. Just because you have 640 acres doesn't make it a drilling unit. You could have a single piece of property 1/4 mile wide and 20 miles long with the length running directly east to west and the way I understand it can't be drilled because they need the length to run NW-SE. So as Sam says there are allot of things the O&G companies take into consideration to form a drilling unit.

Good luck in whatever you decide!  

Comment by sldouglass on December 12, 2012 at 6:10am

The producer decides location of drilling units and they have nothing to do with the surface property lines.  Units locations and configurations are based on how, when and where the drilling will be done, what shape is likely to yield the most production etc.

Units are close to rectangular in shape and the length may be dictated by the distances the producer proposes to drill wells in opposite directions -- something like NNW-SSE.

All but the smallest leased properties are likely to be in more than one unit and the larger properties could have parts in several different units.

 

Comment by David Hunt on December 11, 2012 at 5:30pm

J. Rick may I ask what Landowner group is this 640+ acres signed up with?

Comment by Bob Jenness on December 11, 2012 at 4:21pm

So, J. Rick, you and your 580 acres of neighbors have (dependent on geology, of course) maybe 50 to 100 MCFD total production capacity for a few years if someone could magically drill the 8 or so wells to drain it all at once. You're probably not the only such drillable unit within pipeline distance of each other. But according to Sam, the only folks who can drill it would rather starve you out by first slowly drilling all the nearby land they HBP. Since they've been quite slow to build new infrastructure to carry that gas to market, they can probably justify 5, 10, or 20 years of stalling, meanwhile, you're burning $ to steward the land. If we look at what happened in the Bakken, by the time most land got drilled, almost all rights were already owned by the drillers - they just waited til each landowner was desperate for a few $ and bought them out. I think nobody understood horizontal technology then, but financial desperation still trumps that knowledge.
On the other hand, both Steve Jobs and Boone Pickens showed us that big new technology things can be built from a small start. Some other business models that might work are demonstrated by REA, etc.
I know Boone Pickens bought Gulf Oil starting with a lot fewer dollars than it was worth, and I just don't understand why a big electric company wouldn't chip in most of the $ to start a captive energy flow to a new power infrastructure if the ROI is as big as it seems to be. I also don't understand why the cost of a Horizontal well varies from 3 to 20 million depending on whether the argument being made is "wonderful new technology" or "it takes billions to play". Every other new technology curve I know of, the price keeps coming down until it approaches the actual cost, and this one would still seem to be on the learning curve.
Gulf was stuffy, Boone fixed it
IBM was stuffy, Bill fixed it
Computers were stuffy, Steve fixed it
AT&T was stuffy, Carter (and the USA) fixed it
Penelec was stuffy, PA fixed it
Note that all the above were cases of a new competition being applied. Also note that some of the fixers went or are going out of business, but they sure had fun one time.
Let's unstuff this before they starve us to Bakken status.

Comment by Jim Dickinson on December 11, 2012 at 8:44am

Perhaps at some point in time, in order to secure the best geology, and due to the patchwork of leased and unleased properties, Range and competing drillers might have to do some lease trading to accumulate the acreage they need.

Comment by sldouglass on December 11, 2012 at 5:35am

Comments interspersed below

So the bottom line I'm hearing is...

Bottom line is that if you can afford to wait, then wait until someone comes begging on your doorstep because it is time to drill and your property is needed now.  If you cannot wait, that is another thing.

If your land is part of a drill able unit or similar contiguous block of 600+ to 1200 acres,

Currently offered leases ask for the right to unitize 2 square miles - and no one has explained why.  It does not have anything to do with geology.  It has to do with holding as much land under lease as possible after the primary term by drilling one or two wells.

Geology is king (if you can find an interested driller

Do not bother looking for a driller unless you are a billionair able to withstand the shock of costs and you have some kind of relationship with pipeline companies etc. and a market to sell the gas

), but if not, then location and the whim of surrounding HBP holders will determine whether you'll get a lease in your lifetime.  

The producer needs you and you need him [or her or it]; so it is stand-off at some point.

I'd still find it an interesting analysis exercise to look at a NWPALG or CX, or maybe just all unleased Crawford Co. as a potential start-up business.

Not sure what you mean by start up business, but good luck - especially if you intend to compete with the big guys who have the know-how, the staff and unlimited resources. 

How many 80% complete horizontal units can be formed,

I am not familiar with 80% complete.

to drill how many wells?  How many would require a 50% JV with a single driller?  

probably none - although even the deep pockets sometimes take on a partner to share the risk.

Is this a big enough critical mass to, for example, partner with a big power company in a regional JV?

Would a regional power company be interested in any partnering with a little outfit?

Can such a venture actually contract quality drilling services to execute?  etc.  Can the management talent be found in PA to do such a thing, and is the cost of such talent low enough that the not-for-profit nature of a landowner group will provide a competitive advantage over stuffy old vertical drillers who may not drill Crawford in my lifetime?

A local landowner group "can" put together the talant to do the land deal, but is it not too much to expect to think a landowner group can put together the human, technical, business and financial resources to even think about taking on the big boys [and girls]?

Modest sized vertical drillers, stuffy or not, do not appear to be in the game, except to buy-lease the land and turn it over to the unconventional producers.

Comment by Bob Jenness on December 11, 2012 at 1:15am

So the bottom line I'm hearing is...

If your land is part of a drill able unit or similar contiguous block of 600+ to 1200 acres, Geology is king (if you can find an interested driller), but if not, then location and the whim of surrounding HBP holders will determine whether you'll get a lease in your lifetime.  

I'd still find it an interesting analysis exercise to look at a NWPALG or CX, or maybe just all unleased Crawford Co. as a potential start-up business.  How many 80% complete horizontal units can be formed, to drill how many wells?  How many would require a 50% JV with a single driller?  Is this a big enough critical mass to, for example, partner with a big power company in a regional JV? Can such a venture actually contract quality drilling services to execute?  etc.  Can the management talent be found in PA to do such a thing, and is the cost of such talent low enough that the not-for-profit nature of a landowner group will provide a competitive advantage over stuffy old vertical drillers who may not drill Crawford in my lifetime?

Comment by sldouglass on December 10, 2012 at 3:32pm

I am not exactly sure of the history of Ranges acquisitions but I thought its initial involvement was the result of acquiring another company that was a shallow driller without solid ownership - probably before the shale drilling in Marcellus and Utica.  That kind of acreage worked fine for the shallow operations, but the rigid nature of the horizontal drilling in the shales meant that it needs to acquire properties in between to get solid blocks for large units.

Now where it has substantial holdings it is a poker game.  Range [or whoever might succeed to some or all of its ownership as the result of some deal] needs the properties in between its current holdings and the property owners need Range.  It needs to pick of as many individual properties as it can over time either directly or through others.

If or when that effort is no no longer successful, it would seem logical for it to turn to NWPALG to make a deal for the rest.  And the larger that group is the better it should be able to do for everyone - including the landowners who are leading that group.

It cannot be expected that some modest sized company will be in a position to throw out $20,000,000 for each well pad development.  This shale stuff is for the big guys who can think in terms of billions.

Range is probably not in a hurry since its resources are busy elsewhere, but it is likely to want the reserves for future development.  And if the occasional well they are drilling in the area looks good, it seems like the interest should continue.  Has anyone thought about how many wells it would take to fully develop say all of Crawford County.  Although they may be drilling wells a somewhat greater distance, the average Range well of less than 3500 feet drawing from a width of 500 would mean some where around 50 acres a well.  That means a lot of drilling.

Meanwhile drilling a well here and there to let people know there is interest is useful and advances and confirms the geology.

Too bad the Ohio stuff got so exciting - but even there, I wonder how long it will take to get all the wells drilled there.

Comment by sldouglass on December 10, 2012 at 1:12pm

Ok
I am sure it is all very frustrating.

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