Big Oil Eagle Ford Strategy: Buy lease acreage cheap, Sell lease acreage high

"I believe that it is better to tell the truth than a lie. I believe it is better to be free than to be a slave. And I believe it is better to know than to be ignorant."
H. L. Mencken

 

     Company investor presentations are road maps that tell a story about where a company has been and where it is going. The internet abounds with Eagle Ford operator online investor presentations that are data rich and contain the blueprint as to what operators have planned and are executing in the Eagle Ford Shale. A case in point is the recent presentation by Chesapeake, which validates everything I have been blogging about for some time now. Their most recent presentation can be found at

  http://www.chk.com/Investors/Pages/Presentation.aspx 

and it is not only the Chesapeake model for Eagle Ford development, but it is the universal strategic blueprint model being used by all the operators in the Eagle Ford. 

        At the core of operator strategy is leasing acreage at below market prices and then taking that acreage and parlaying it into serious capital gains for themselves. Operators are flipping their valuable low cost lease acreage to others for fabulous fortunes at enormous price per acre markups. Chesapeake and all the other Eagle Ford operators are paying chump change for valuable acreage and then reselling that acreage at a tremendous profit. 

         In Chesapeake's own words, found on the second slide below, "Within one year of acquisition, sell a minority interest in a new play, recovering all or virtually all of the cost to acquire the leasehold in the play and fund a significant portion of CHK's future drilling costs in the play." That pretty much sums up big oil operator strategy in the Eagle Ford.  They are able to execute this strategy of paying chump change for lease acreage due to landowner ignorance. It is past time for landowners to educate themselves about the extremely high value of Eagle Ford acreage. Many who have leased previously, now regret having signed those leases for peanuts. Others have been duped into signing on the false promise of a well being drilled or they signed for the bragging rights of having received much more than previously paid to their neighbors. I have said this before and I say it again, Eagle Ford acreage today is worth far more than the $30,000 per acre paid in the Haynesville and Barnett a couple of years ago. How much more than $30,000 and if 27 1/2% royalty will be eclipsed is in play right now. 

         All of the operators in the Eagle Ford have the same strategy, which is to lease acreage for peanuts and then flip and finance all their operations on the backs of the uninformed landowner. 

          Study the slides below and you will see how operators plan on exploiting landowners. 

In 1st half of 210, Chesapeake invested heavily in new leasehold acquisitions in various liquids-rich play

In 2 half of 2010 and 2011 Chesapeake will focus on recapturing significant portion of these new leasehold expenditures through joint ventures and asset monetizaitons

Within one year of acquisition, Chesapeake will sell a minority interest in a new play (Eagle Ford), recovering all or virtually all of the cost to acquire the leasehold in the Eagle Ford play and fund a significant portion of CHK's future drilling costs in the Eagle Ford play.

 

Very attractive rates of return

   Relatively shallow formation results in lower drilling and completion costs

   Value of liquids is 3x more valuable than gas on BTU basis which makes the actual production today equal to, or greater than the acreage in Haynesville and Barnett purchased at $30,000 per net acre

OPERATORS CAN ONLY EXECUTE THEIR LANDOWNER PREDATORY PLAN SO LONG AS LANDOWNER'S ARE IN THE DARK AND UNINFORMED. DON'T BE A VICTIM OF BIG OIL! STAND UP FOR YOUR RIGHTS! DEMAND FAIR COMPENSATION AND SUA TREATMENT. JUST SAY NO TO LOW BALL OFFERS.

THERE ARE NO DRY HOLES

EAGLE FORD SHALE COST HALF TO FRAC COMPARED TO HAYNESVILLE & BARNETT

SHALE ZONE IS THICKER ALLOWING FOR UPPER & LOWER COMPLEX MATRIX COMPLETION

EAGLE FORD SHALE, ESPECIALLY OIL WINDOW ACREAGE IS WORTH FAR MORE THAN THE $30,000 & 27 1/2% ROYALTY PAID IN HAYNESVILLE AND BARNETT