Wrong to seek competing bids?

Oil and Gas Leasing Help
#1

I enjoy the discussions on here, and have learned much. My problem:

Our lease in a good area in Roosevelt County, Montana, will be up in October. We expect Brigham to be interested in leasing again--two wells less than two miles away in the same T&R--one was quite good, one not known yet. A spacing unit has been requested for every section in that T&R.

Meanwhile, in the last year, due to other concerns with other minerals, I have made contact with landmen who lease for XTO and for Continental, with questions about my leases with them. The landmen were friendly and helpful. Now my question: when Brigham contacts with an offer, is it wrong to call those XTO and Continental contacts to see if they can better the offer? Will this just get everyone mad?

Thanks!

#2

You have every right to the best deal you can get and responsibility to the generations to come, for they will likely be bound by your decision. 1 well can tie up your minerals for 20 to 30 years or more and 1 well may not drain your minerals. You could be getting a new infill well every 10 to 20 years till they have enough to effectively drain the mineral acres of your spacing. Don’t think of it as leasing for a few years, think of it as locking in the price for a few generations. Looked at that way, don’t you want the best deal you can get ? RWK

#3

Dear Ruth,

What you are referring to is called "shopping the deal." Brigham will not be happy, but XTO and Continental perhaps will love the ability to compete. You would not be shopping the deal if XTO, Continental, or others came to you and wanted to lease.

Is it illegal to shop a deal? No.

Is it unethical? No.

Will it put a chilling effect as far as leasing on other lands that you might own (like if you were a major, major landowner)? Perhaps, once word gets out that you are a deal shopper.

I do believe that the landowner, or their adviser or counselor, has the responsibility to commercialize his or her assets to the best of their ability.

Having said that, in a state with forced pooling, you have no real downside.

#4

Ruth:

We have 375 net mineral acres in Roosevelt County and our lease expires next year. You bet I will shop around this time (in the event no well is drilled) and find the best deal. In 2004 and 2008, we signed a lease not really understanding the game. Since that time, I have hours studying forums and websites thus educating myself to the aspects of leasing and getting the best $ bonus/acre. Currently, EOG has spaced our mineral area and recently a very good well was drilled near our property. You might say that we are in the same boat as you. I believe drilling in this County will see more activity as the year goes on as it seems the drilling activity in North Dakota is slowly moving towards the Montana/North Dakota border areas. As I said on a previous post, time is actually on our side as if we get to re-lease, it will be for much more per acre, greater % royalty and less years.

#5

Why don’t you do like the State of Texas just did in the Eagle Ford for Guadalupe River basin land in Dewitt County. They took sealed bid on the different sections and got as high as 12500 per acre when every landowner was getting between 1200 and 1500 in a better area than that. If our place comes open again, dang right I will advertise for sealed bids to be open by a certain date like the state. May not work, but it sure doesn’t hurt trying.

#6

Mr. Barnett,

I have done exactly as you proposed one time. My client had two companies vying for the same lands. After discussion with and approval of the client, I had a sealed bid sale.

It worked out well for my client. This, however, was an isolated instance. I would think that many oil companies would not be interested in a bid situation, even though they do it many times a year with state agencies. It would be a precedent that they would not want to see set. If landowners used this strategy in an area, the companies would likely move to another area -- or worse, collude to keep the price down. Then the landowner has an artificially low price, without the laws against collusion to impede them, as they would on the state or federal level.

Morgan Barnett said:
Why don't you do like the State of Texas just did in the Eagle Ford for Guadalupe River basin land in Dewitt County. They took sealed bid on the different sections and got as high as 12500 per acre when every landowner was getting between 1200 and 1500 in a better area than that. If our place comes open again, dang right I will advertise for sealed bids to be open by a certain date like the state. May not work, but it sure doesn't hurt trying.
#7

Mr. Barnett:

If you go the seal bid route in regards to leasing, you could begin by setting minimums (% royalty, $/bonus acre, length of lease) and wait to see if you get any bites. Of course it would help if you owned a large amount of mineral acres in contiguous sections.

#8

Ruth:

Our minerals are in T30N; R58 and R59 in Roosevelt County, Mt. EOG has this area spaced but the drilling activity has been somewhat slow. A very good well was recently completed to the West and I expect additional activity will occur this year. Seismic work was also done on this area last year so we are on a wait and see game. Good luck on your area and maybe we will both be happy in the next couple of years.

#9

If a Eagle Ford landowner today made a oil and gas lease in the oily part of the trend for $30,000 per acre and 30% royalty, he would rue and regret having done so very soon. $30,00 per acre and 30% royalty amounts to giving away the store when you factor in the incredible Return On Investment the operator is getting. Landowners should use good metrics and recognized accounting for determining leasehold value. The landman uses vodou, cock and bull stories, and pure fabrication in assigning value for your land. Parting with your minerals in the middle of a massive scramble for acreage and a hurricane of escalating prices seems unwise to me. Don't wake up some day and feel the anguish and pain, the regret and remorse, that you gave away your inheritance and the store for a pittance of it's true value. I have a blog with extensive current information to help guide landowners at http://eaglefordinfo.blogspot.com/

Don't be victim!

#10

Everybody has their own standards, I suppose. If I had 500 acres and that was offered to me, I could be out by 4:00 PM tomorrow.

W G said:

If a Eagle Ford landowner today made a oil and gas lease in the oily part of the trend for $30,000 per acre and 30% royalty, he would rue and regret having done so very soon. $30,00 per acre and 30% royalty amounts to giving away the store when you factor in the incredible Return On Investment the operator is getting. Landowners should use good metrics and recognized accounting for determining leasehold value. The landman uses vodou, cock and bull stories, and pure fabrication in assigning value for your land. Parting with your minerals in the middle of a massive scramble for acreage and a hurricane of escalating prices seems unwise to me. Don't wake up some day and feel the anguish and pain, the regret and remorse, that you gave away your inheritance and the store for a pittance of it's true value. I have a blog with extensive current information to help guide landowners at http://eaglefordinfo.blogspot.com/

Don't be victim!

#11

I'd be inclined to accept $30,000 per acre and 30% royalty. RWK

#12

I might know someone interested in leasing your land. How many acres you got and where is it located.

#13

I’m sure you could find better than mine in N.D., which is where my acres are, for alot less. But mine are situated with overlapping productive zones. RWK

W G said:

I might know someone interested in leasing your land. How many acres you got and where is it located.
#14