Monday, December 13, 2010

"I don't like to buy acreage for fair price” says oil company executive

With each passing day I become ever more convinced that acreage in the overpressure oil window will eventually see lease bonuses far exceeding the $30,000 per acre and 27 1/2% royalty that was paid for Barnett and Haynesville acreage 2 years ago. Thanks to this blog, I now have a network of landowners and others with pertinent and important information that supports that notion and buoys my optimistic appraisal. Eastern province Eagle Ford acreage in the thick overpressure oil window is worth many times more than Barnett and Haynesville sweet spot acreage was worth when operators paid $30,000 per acre lease bonuses and 27 1/2% royalty. Eagle Ford is poised for historic highs in lease acreage deals to be made soon, very soon.

From the very inception of this Eagle Ford blog, I have steadfastly and methodically exposed the manner in which operators have flagrantly mistreated landowners. In doing so, I have merely pointed out a few of their unscrupulous tactics and deceitful behavior that has occurred in the Eagle Ford. The full extent of their deception is beyond the scope of my blog. My paramount objective has been to give landowners some hard pertinent facts, and useful information they can use to fairly negotiate a oil and gas lease. As it turn out, the term “fairly negotiate” is a oxymoron in regards to how operators conduct their leasing operations.

For the most part, I have used the operators own words to document, report and point out what they themselves have said, usually to their stockholders and investors. I have merely used their own numbers, facts and arguments that they themselves have used during their conference calls. I listened carefully to those conference calls to their investors streamed over the internet and I took notes. For the most part, my blog has only parroted what they themselves have said. I have been faithful to the truth and I have fairly reported the facts in regards to what operators have said and bragged about publicly. The facts speak for themselves, and my blog is merely an amalgamation of those facts. I have simply codified and highlighted some of those facts, and in doing so, I have exposed how operators and their landman agents have used stealth, cunning, deceit and lies in their brutal exploitation of Eagle Ford landowners who signed oil and gas leases with them early. Their callous treatment of so many honest, gullible and uninformed landowners has been nothing short of shameful and borders on dishonesty.

Because of my blog, all eyes have now been opened as to what a fair price should be for land in the Eagle Ford. By now you should know that all land is not equal, some land is more valuable than other. Landowners in the thick shale of the overpressure oil window have extremely valuable “proved” acreage. This blog has laid bare those facts, and I have provided full transparency for all Eagle Ford landowners to see how operators have used their army of landman to conquer Eagle Ford landowners. Aubrey McClendon, the CEO of Chesapeake Energy, refers to his leasing agents as his "army of landman.” There is nothing more telling in regards to how landowners have been exploited than McClendon's remark "I don't like to buy acreage for fair price, I like to go in and put a play together where we put our army of 5,000 landman to work, and we are buying it lease by lease for a very inefficient cost average to the rest of the industry to try and replicate and we make it a transaction where there is not a public market, it's us and the landowner and we're gonna most generally going to get the benefit of that side of the transaction, so think about again, every time we move we are buying acreage worth 5 to 10 times what we pay." That remark sums up how operators see you the landowner, as someone to exploit and conquer.

I have no idea how high lease bonuses and royalty in the Eagle Ford will eventually go. I do feel fairly certain that prices are poised to explode higher and that many savvy operators will eventually be paying on the order of $100,000 per acre lease bonus and 30% royalty for some Eagle Ford acreage, and though not happy about paying that, they will, because even after paying those huge amounts, the overpressure oil window will still be enormously profitable for them, leaving them a lot of room to make millions of dollars. Even at $100,000 per acre the deals will still be lucrative and profitable for them, the overpressure oil window is that lucrative. It's all perfectly true. This might sound like the musings of a mad man but look at the results of the wells being brought in and you readily see that the figures don't lie, the Eagle Ford is unlike anything you have ever seen or heard about before. If you still own acreage and are not leased, demand a fair price. The oil in the ground will only become ever more valuable. Time is on your side, don't rush to make a deal. You won the lottery! Don't give your winning lottery ticket away!


  1. I worked in the oil patch and I know how oil companies operate. They spend money in profilgate ways on themselves. Oil company execs reward themselves with millions of dollars in bonuses, stock options, and other perks. They laivsh themsleves with riches while they cheat everybody they can, sometimes just for sport rather than driving a good deal. What I can't figure out is how some people don't see this scheme and why in the hell do they think look up to operators as civic minded good corporate citizens? They are not, regardless of thier fake and exaggerated contributions to our communities. Keep calling BS on these boys and educating some of those in the dark.

  2. Gordon Gekko: The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy? It's the free market. And you're a part of it. You've got that killer instinct. Stick around pal, I've still got a lot to teach you.

    You are going up against Gordon Gekko types. All you Eagle Ford landowners should never forget that.

  3. You have opened a lot eyes by shinning the light. The Doubting Thomas are nowhere to be found now. Everybody sees what is going on now. Thanks.

  4. Why lease and pay ordinary income tax at 35%-45%. Simple change in contract makes lease a sale. Thus capital gain of 15% vs 35%. Its not what you make but what you keep.

    Several IRS private letter rulings suggest an alternative to a typical lease arrangement (upfront lease bonus payment plus retained royalty) mat closely matches the economics of a lease, but with potentially much more attractive tax consequences for die landowner. In this alternative, the developer pays the landowner (a) an up-front payment equal to, but in lieu of, the lease bonus, (b) a retained fixed production payment equal to 1/8 of the production from the property up to 90% of the estimated total reserves at inception, and (c) a retained contingent production payment of 1/8 of any production in excess of die estimated total reserves at inception. The production payments are m lieu ofthe retained royalty under a lease. Footnote 23

    Under die retained production payment arrangement, die landowner receives substantially the same payments as under the lease, except that no royalty is paid on die last 10% ofthe estimated total reserves at inception. However, because the retained production payments are not considered an economic interest in the reserves, the transaction is considered a sale of die reserves rather than a lease. As a result, the tax consequences of this arrangement are materially different from the tax consequences of a traditional lease. The tax consequences of a sale with retained production payments are as follows:

    Landowner's Tax Consequences. The upfront payment is treated as an amount realized from me sale ofthe minerals. (footnote 24) In computing the gain from the sale, the landowner should be able to allocate its tax basis for the land between the mineral interest and remainder interest based on die ratio ofthe estimated value of die payments under die sale transaction to the value ofthe remainder interest. The portion of basis allocated to the mineral interest can then be recovered against the upfront payments and the production payments according to the taxpayer's method of accounting. Assuming the minerals are a capital asset held for more man one year, the landowner's gain on die sale would be long-term capital gain eligible for a 15% maximum tax rate, a savings of 20 percentage points over the 35% maximum ordinary income tax rates. The net result should be less taxable income and a significantly lower tax rate.

  5. I had someone contact my grandmother about an ROW easement. They were offering $80 a rod. Is this a fair price? What else should she/we being asking/looking for? Thanks

  6. Yep, the acreage there is worth a heck of a lot money. Lots of those wells produce 2,000 barrels and more per day, That is over $200,000 a day A couple of weeks of that and the well is paid for and it is a pure money machine. I hear they last for years.

  7. A little late for me but you speak the truth.

  8. I drove to Kenedy, Karnes City, Nordheim, Yorktown, Cuero, Hochheim, Shiner and Moulton yesterday. The land is wall to wall drilling rigs and pipelines galore.

  9. Aubrey McClendon is the face of the oil company and the way they take advantage of landowners.