Chesapeake - Utica JV - Eagle Ford Drilling at a High

Chesapeake Energy continued its string of successful joint-ventures (JV) following leasing that has added more than 5 million acres in shale plays over the past few years. In all, the company has spent $2,200 per acre and gone on to sell a portion of that acreage for almost $11,000 per acre. Chesapeake has recouped its investment in all of those plays by selling no more than a 33% interest in each shale play. In the latest JV, CHK is getting $2.14 billion or $15,000 per acre for a 25% interest in 650,000 net acres in the wet gas window of the Utica Shale in Ohio. I assume this is the area where CHK references "superior economics". It will be interesting to see what happens in the dry gas and oily windows.

Chesapeake's Eagle Ford drilling program has ramped up to 29 rigs running across the play. 29 rigs leads the way in South Texas and those numbers are expected to stay high as CNOOC's cost carry continues to help fund development.

This new JV would make our seventh. We started with the Haynesville in July of 2008, and in the 3 years since then, we have brought in partners on the Fayetteville, Marcellus, Barnett, Eagle Ford, Niobrara and now into 1 phase of the Utica play. In these seven JV areas, the company initially acquired approximately 5.1 million net leasehold acres at a cost of $11.1 billion. That's around $2,200 per net acre overall on average. We then sold 1.5 million of those acres for total consideration of $16.4 billion in cash and carries, meaning we recovered 150% of our total leasehold costs in all the plays combined, while leaving ourselves with 3.6 million net acres in 7 of the nation's very best plays, at a negative leasehold cost of $5.3 billion. That's about a negative $1,500 per net acre. I really don't think the magnitude or significance of what we have accomplished by owning 3.6 million net acres at a profit of $1,500 per net acre has been fully appreciated. It is quite simply unprecedented in our industry.

Read the entire press release at chk.com

Hess Encouraged in the Eagle Ford

Hess announced third quarter earnings today (Oct. 26). The Eagle Ford was only mentioned briefly. The question was posed whether or not the Eagle Ford is core to the company.

Analyst:

Paying $3,000 per acre is significant, but is the company ready to call the area "Core".

John Hess:

"Focus is on delineation and what we have now. We've been encouraged to date."

Analyst:

Are you still acquiring acreage?

John Hess:

"(Hess) is being opportunistic. Pricing is pretty high, but as we see opportunity we'll do it. But, only if it will make money."

Hess is a partner with ZaZa Energy across a portion of its acreage.  The companies have acreage in less explored areas like Fayette County.  Drilling over the next year will most definitely determine whether the Eagle Ford becomes a core development area for Hess. For a company with lots of opportunities, Bakken Shale, Utica Shale, and offshore, you can bet the decision will be driven by the statement "if it will make money".

Lawsuits Over Mineral Rights on the Rise

Lawsuits over the nature of mineral leasing and the high stakes game of who owns and who leased first is a multi-million dollar issue in South Texas. Everyone sells land and leases minerals happily until acreage prices skyrocket. That's when the lawyers come out. That's when people realize they might have missed something very big. The gravy train of $10,000+ per acre lease bonuses and long lived royalties might have passed right by. Often times, real estate trades for fractions of the dollar before oil or gas is discovered. In a 1-2 year time period in Northern Louisiana, acreage prices in the Haynesville Shale increased from less than $3,000 an acre (that was good) to sell land and mineral rights to simply leasing minerals for as much as $20,000 per acre. Prices have come down, but the boom is much like what we'experiencing in the Eagle Ford.

The dollars involved also increase the likelihood of fraud. There will no doubt be bad apples, but companies do their due diligence on title and many of these issues are resolved before leasing. If you are leasing, always do research to make sure you're working with a reputable party.

A tangle of lawsuits has been filed over the disputed ownership of valuable mineral-rights leases in the booming Eagle Ford Shale in South Texas, including allegations that the Fort Worth office of JPMorgan Chase & Co. wrongfully leased lands in Karnes and DeWitt counties.

In the DeWitt case, Orca Assets of Corpus Christi says it paid $3.2 million for a lease that the bank, acting for Fort Worth-based Red Crest Trust, had already sold to a rival drilling company.

Orca is on the other side of litigation in Karnes County, where it is a co-defendant with Chase and the trust.

Not too long ago, very few would care about those assets. But hydraulic fracturing technology has made Eagle Ford a hot drilling area. The San Antonio Express-News reported that mineral leases that fetched just a couple of hundred dollars less than a decade ago are now commanding $10,000 and more.

EOG's Eagle Ford Shale Investment Paying Off

EOG is reaping the benefits from being an early mover in the Eagle Ford Shale. The company was able to build an over 500,000 acre position for $450 per acre, while industry deals are now trading above $20,000 per acre. After assembling its acreage position, EOG drilling operations commenced and the company has gone for 0 to 23,000 barrels of oil per day in just 18 months. The company did a recent interview on its Shale Oil operation with CNN and you get a taste for how early the company began moving into liquids plays.

This "wall of disbelief" -- Papa's term -- did have one benefit. It allowed EOG to acquire mineral rights at bargain-basement prices, even after the cloak of secrecy surrounding the Parshall discovery had lifted. EOG holds 600,000 acres in North Dakota, leased at an average cost of $190 an acre, and another 595,000 acres in Texas's Eagle Ford Shale at a cost of around $450 an acre. Similar properties in the Bakken are now leasing for anywhere from $800 to $6,000, according to Papa, while Eagle Ford acreage goes for as much as $20,000.

Papa believes Bakken and Eagle Ford will wind up as the fifth- and sixth-largest oilfields ever discovered in the U.S., each with about 4 billion barrels in recoverable reserves. To put that into perspective, the largest offshore oilfield, Gulf of Mexico's Thunder Horse, is expected to produce 1.2 billion barrels, and drilling offshore is more expensive. "It was pretty darn uncanny for them to sneak in and carpet-bomb all that acreage," says Parker.

The challenge for EOG going forward will be replicating its North Dakota success elsewhere. Papa maintains that 70% of what his crews learned in the Bakken can be applied to the Eagle Ford and other shale oilfields where EOG has acquired land, such as New Mexico's Leonard Shale, West Texas's Wolfcamp, and Colorado and Wyoming's Niobrara. "Our learning curve is now months rather than years," he says.

Analysts seem impressed. EOG's Eagle Ford operation has grown "from zero to 23,000 [barrels per day] of oil in less than 18 months," gushes Wunderlich Securities oil analyst Irene Hass in a recent report. She thinks Eagle Ford will surpass Bakken as EOG's top oilfield by 2013. One obstacle is the high cost of drilling. Rigs are scarce, and workers are in such demand that North Dakota roughnecks are earning $60,000 a couple of years out of high school, according to Frank Mosely, an energy economics professor at Minot State University. Another bottleneck is transportation. The cost of accessing existing pipelines is so high that EOG is able to save in the range of $5 to $10 a barrel by moving oil by rail rather than by pipeline.

Read the full news release at CNNMoney.com

Eagle Ford Lease Bonuses Making Land Owners Millionaires

Eagle Ford lease offers are going out daily, so if you own land in South Texas expect to hear the landman knocking. Lease bonuses are several thousand dollars per acre in areas of proven production potential and operators are making land owners millionaires over night. For more on leasing activity visit MineralRightsForum.com.

"Frenzy over the Eagle Ford Shale oil and gas prospect is turning lucky mineral rights owners into millionaires overnight. But in a rush to cash in on the opportunity, costly mistakes are being made that will leave many learning lessons about legal issues the hard way."

“ 'The devil is in the details,' says attorney Robert A. Schaezler, of The Schaezler Law Firm.  'When there’s so much money at stake, it’s important to keep a cool head and make sure you get the law on your side.' “

"To help ensure that, there are three key questions he recommends mineral rights and landowners should ask themselves:

First, where do you stand?

Second, what are your rights?

Third, what should you look for in a lease?"

Read the full news release at GonzalesInquirer.com