Replies to This Discussion

Permalink Reply by Jack Young on September 11, 2015 at 4:44am

Thanks, Tim - here are a couple extra details. First, not all of the acreage had a prior 1/8th royalty outstanding. JKLM got everything in quite a few cases. The surrender of lease doesn't include the acreage in Hector Township. And the price reported for the purchase was roughly $680/net acre.

One additional advantage of this purchase for JKLM is that they get out of the drilling commitment contained in the original Triana lease. So they can adjust their drilling plans to reflect the ups and downs of the gas market more easily.

Permalink Reply by Tim on September 12, 2015 at 2:46am

Jack, 

What are you hearing about TP (Travis Peak)?  Are they trying to divest part of their holdings?  Or perhaps find a JV partner?

Permalink Reply by Janice L. Hancharick on September 11, 2015 at 5:49am

It's been apparent for over a year that interest in Potter was and is still growing.  JKLM (aka Terry Pagula) is crazy like a fox.  His past experience @ turning a healthy profit was exhibited next door in Tioga when he grew East Resources into big business starting w/$20 AC leases, then sold out to Shell.  

JKLM began making lease offers of $300 AC months ago in Potter.  Unfortunately some signed early on ...  those outside of a local landowner group (4-County).  Some even saw $$$ rise to over $2,200 AC in the same area.  JKLM 's serious about turning a buck here, that's obvious.

The Group members that waited and signed with Travis Peak "as Group members" got an even better deal than those who went w/TP as individuals, and those who signed later w/ JKLM.

Now how much longer will rights holders in our region be poor-mouthed about the value of their OGMs?  Probably about as long as the ploy still works and achieves cheap deals.

It's difficult to be patient especially when the energy market is so volatile, but every time a ball hits the ground it bounces right back up.  4-County hit it right in eastern twps. for landowners ready to deal when the bidding war was on between JKLM and Travis Peak months back.  It's a no-brainer we're seeing activity bounding back for our dry gas region, now that liquids are w-a-y down.

While landowners throughout 4-County lamented over their ill fortune @ not having wet gas,  now we're seeing the value of dry.  To everything there is a season.  That will never change.

Permalink Reply by Tim on September 12, 2015 at 2:42am

The lease assignment was for 488 net mineral acres.  The deeded acreage, known as the Hanley and Bird tracts, which does include the 1/8 perpetual royalty, is approx 11,584.15 net mineral acres.

As far as valuation is concerned, the 1/8 perpetual royalty has to been considered to come up with a fair market value.  For example, if this 11,584 is released at a 15% royalty, the owner of the acreage is only entitled to 2.5% royalty, as the 1/8 perpetual royalty is due 12.5% of the 15% royalty.  Thus, for $680/nma, JKLM (Sabre) has purchased a 2.5% royalty.   

This means JKLM paid approx $4,080 per net mineral acre, when we take into consideration the 1/8th perpetual royalty.  

Permalink Reply by Jack Young on September 12, 2015 at 5:16am

As I mentioned previously a substantial portion of the Triana acreage had no 1/8^th royalty outstanding. And the outstanding royalty (when present) didn’t impact all depths either. So you can’t take the Sabre purchase price and adjust it by an arbitrary and unsupported ratio to get a price you like better.

 

Also, if you look at the lease itself you’ll see that there are other terms and obligations that had value for the OGM owner. Those have to be factored into any calculation, along with the property’s value when the lease expires (as they all do) and the property can be leased again for a different bonus and royalty rate. For these reasons and more, using the Triana sale to estimate a comparable value for other nearby acreage is a much trickier job than your comment acknowledges.

 

Permalink Reply by Tim on September 13, 2015 at 4:56am

Appreciate you further making my point, that you simply can not look at the price paid, and make the inference that JKLM paid $680/nma for 100% oil, gas, hydrocarbon rights in Potter County.  There are other devils in the details, and a 1/8th perpetual royalty is quite a big detail, esp to valuation.  (Please provide deed book and page, if you going to go on about the 1/8th perpetual royalty no longer encumbering the 11,500 acres.)

If anyone would like to see the recordings on JKLM/Triana, sent me a private message.  

Bottom-line, Mr. Pegula continues to add to his position in Potter County.

Is Travis Peak next for JKLM?  Seems to be quite a few locals tweeting that song.  Care to comment on that one, Jack?

Stay tuned.......

Permalink Reply by Jack Young on September 13, 2015 at 7:01am

If all you have is a copy of the recent deed etc. from Triana to Sabre I’m not sure why you’re even posting. Have you seen the actual lease from Triana to JKLM, the maps showing which acreage is impacted by the old Susquehanna Chemical Company royalty or the terms of that royalty and which formations it applies to? If not you really don’t have anything very useful to pass along. And you certainly can’t question my comments unless you know more than you’ve acknowledged.

 

Regarding Travis Peak, I doubt that JKLM will end up with that acreage unless Travis Peak is willing to take a big loss on their investment. JKLM doesn’t typically overpay for things, and right now it’s a buyer’s market where cash is king. I suspect that any offer JKLM might make would be “take it or leave it”. I also question whether JKLM will buy out Shell since a market price sale would force Shell to take a really major write-off. But I have no inside information on either count, just the same rumors others have heard plus a knowledge of how these potential transfers would impact each player financially.

Permalink Reply by paleface on September 13, 2015 at 9:22am

I would think Shell had a iron clad territory agreement with pegula when they bought him out of bankruptcy.

Permalink Reply by Jack Young on September 13, 2015 at 9:54am

Those things only run for a limited number of years. I'm pretty sure he can do what he wants now.

Permalink Reply by paleface on September 13, 2015 at 10:44am

I haven't seen any leases for JKLM in Tioga so far.

Permalink Reply by Jack Young on September 13, 2015 at 1:41pm

I don't believe they are interested in getting leases in Tioga County. Trying to assemble a drillable land position in the better parts of Tioga would be virtually impossible now due to all the leases that are HBP. That's why JKLM went to Potter County in the first place. We've offered them acreage in Tioga County and they've turned it down.

Permalink Reply by Jack Young on September 13, 2015 at 2:38pm

And East wouldn't have gone bankrupt anyway - Terry's partners (KKR) had plenty of cash and would have provided the financing needed to get through any rough patches. There were lots of folks interested in East's acreage back then, and plenty of money to be made with Shell or without them.

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