BROWN DENSE PUZZLE GETS A BIG LOUISIANA PIECE

Today's Louisiana Department of Natural Resources, Office of Mineral Resources, State Mineral & Energy Board July auction of publicly owned mineral tracts includes 29 bid tracts totaling over 1500 acres in 3 parishes: Union, Claiborne and Lincoln, with the bulk of the tract acreage concentrated in Union.  IMO, these tracts are associated with the Lower Smackover/Brown Dense prospective area which includes a similarly sized and adjacent area in S. AR.  The bid tracts span a wide area that roughly is described in extent on the Northwest by Township 23 North, Range 5 West, the Southwest by Township 20 North, Range 3 West, the Northeast by Township 23N, Range 1 West and the Southeast by Township 20N, Range 2 East.  These bid tracts represent the beds and bottoms of state owned water bodies and are more informally defined as being located in the proximity of Little Corney Bayou, Corney Creek, Bayou D'Arbonne, Middle Fork Bayou and Bayou De Loutre.

 

The import of these bid tracts, other than their specific locations, is that they are bids for state leases.  By law state leases are for a primary term of one year.  They may be extended for two additional years by the timely payment of a lease bonus equal to one half the original bonus amount for each additional year.  For that reason, there is no need for companies interested in developing a prospect to acquire them far in advance.  The time to acquire the rights to the state lands is after building a lease block(s) composed of private mineral interests.  It is also in the interest of energy companies to acquire the state leases late in the process of building a lease block owing to the fact that the bids for those tracts, including bonus bids, are of public record and therefore are of value to mineral owners in the negotiation of future leases. 

 

A state bid tract is included in the monthly auction at the request of the owner which may be a local municipality, school district, levee board or other public body, or the tracts may be nominated by a party interested in bidding for the lease rights.  All 29 tracts in the July  auction are nominated by Leslie M. Cooper.  It is common for the nominee of state bid tracts and the bidding entity, whether one and the same, to be a third party representative of the company actually assembling the lease block with the intent to develop.  That is to say that those hoping to know the name of the energy company or companies will not likely find their answer with these auction results.  What will be established by these bids is a baseline value for leases in this prospective area at this early point in the play where there are few drilling and production units and even fewer well permits not to mention one completed well which is likely not economic.  Lease values and offers are influenced by competition.  It will be instructive to see if the auction of these tracts draws multiple bidders.

 

For those with a stake in this emerging Brown Dense prospect, I suggest the following:

  • Do not get in a rush to lease.  Monitor the progression of unitization and well permits.
  • Share the basic information as it unfolds with family and neighbors. 
  • Allow the market time to define the range of values for drilling rights and don't expect any lease offers outside of that range unless you have an unusually large or strategically located mineral interest.  There is no such thing as "the going rate".  Each mineral tract is unique as to its value.
  • Consider getting professional assistance but keep in mind that you need professionals with Oil & Gas experience, not just a lawyer.
  • Understand that the order of priority in lease terms are the basic clauses beneficial to the lessor: royalty, no cost royalty and vertical depth limitation for any mineral interest no matter the size.  For those who live on their mineral tract, depend on well water or own a tract larger than a few acres, there are additional considerations involving surface use and unitization which require additional lease language and professional counsel.  The least important part of any lease offer is the bonus.  Negotiate that last.
  • Discount the "wishful thinking" factor.  This play is not proven and could dissipate and disappear in relatively short order.  In other words, be reasonable in your lease expectations.  However, keep in mind that should your area of the play prove productive, you and your future generations will live with the terms of the lease agreement negotiated now potentially for decades, long after even an impressive lease bonus is long spent and forgotten.  There is much truth in the saying, "the real money is in the royalty".

 

I will post the results of the auction bids later today when they become available.  Good Luck to all the members in the Brown Dense prospective area.

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Replies to This Discussion

Permalink Reply by Geoff Jones on July 13, 2011 at 4:54
Thanks for keeping all of us up on this play
Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 5:17

You're welcome Geoff.  Here are the auction bid results.

 

29 tracts were nominated. 21 received a single bid by T. S. Dudley, 1 received two bids and Dudley was outbid on that Tract #42138 by C S Tax Properties and there were 7 tracts that did not receive a bid.  For help in deciphering the bids I have placed in bold the number of acres, the bonus and the royalty for each bid and underlined the bidder(s).

 

1 42132 CLAIBORNE 10, 11, 14, 15, 16, 17, 22, 3, 4, 5, 6, 7, 8, 9 T20S, T23N R05W, R17W 48.0 T.S. DUDLEY LAND COMPANY, INC.  $14,400.00 $300.00 $7,200.00 0.20

1 42133 UNION 1, 10, 11, 14, 15, 16, 17, 3, 4, 5, 8, 9 T20S, T23N R03W, R15W, R16W 14.0 T.S. DUDLEY LAND COMPANY, INC. $4,200.00 $300.00 $2,100.00 0.20

1 42134 UNION 1, 10, 11, 12, 13, 14, 15, 17, 18, 19, 2, 20, 21, 23, 24, 3, 4, 6, 7, 8, 9 T23N R01W, R02W 50.0 T. S. DUDLEY LAND COMPANY, INC. $15,000.00 $300.00 $7,500.00 0.20

1 42135 CLAIBORNE 11, 12, 13, 14, 15, 18, 19, 20, 22, 23, 24, 25, 26, 29, 30, 31, 36 T23N R04W, R05W 42.0 T. S. DUDLEY LAND COMPANY, INC.  $12,600.00 $300.00 $6,300.00 0.20

1 42136 UNION 13, 14, 15, 16, 17, 20, 21, 22, 23, 24, 25, 26, 27, 28 T23N R03W 21.0 T. S. DUDLEY LAND COMPANY, INC.  $6,300.00 $300.00 $3,150.00 0.20

1 42137 UNION 19, 2, 20, 21, 23, 24, 25, 27, 28, 29, 3, 30, 31, 32, 33, 34, 36, 4, 5, 6 T22N, T23N R01W, R02W 53.0 T. S. DUDLEY LAND COMPANY, INC. 53.000 $15,900.00 $300.00 $7,950.00 0.20

1 42138 CLAIBORNE 10, 2, 20, 21, 27, 28, 29, 3, 30, 31, 32, 33, 34, 35, 4, 5, 9 T22N, T23N R04W 44.0 T. S. DUDLEY LAND COMPANY, INC. 7.000 $2,100.00 $300.00 $1,050.00 0.20

2 42138 CLAIBORNE 10, 2, 20, 21, 27, 28, 29, 3, 30, 31, 32, 33, 34, 35, 4, 5, 9 T22N, T23N R04W 44.0 CS TAX PROPERTIES LLC $14,388.00 $327.00 $7,194.00 0.20

1 42139 UNION 1, 10, 11, 12, 2, 25, 26, 27, 28, 29, 3, 31, 33, 34, 35, 36, 4, 6, 7, 8 T22N, T23N R02W, R03W 39.0 T. S. DUDLEY LAND COMPANY, INC.  $11,700.00 $300.00 $5,850.00 0.20

1 42140 CLAIBORNE, UNION 1, 10, 11, 12, 13, 14, 18, 2, 3, 35, 7 T22N, T23N R03W, R04W 47.000 NO BID .000 $0.00 $0.00 $0.00

1 42141 UNION 1, 10, 11, 12, 13, 14, 15, 16, 18, 19, 2, 22, 23, 24, 3, 4, 5, 7, 9 T22N R01E, R01W 33.0 T. S. DUDLEY LAND COMPANY, INC.  $9,900.00 $300.00 $4,950.00 0.20

1 42142 UNION 10, 11, 12, 13, 14, 15, 18, 19, 22, 23, 24, 7 T22N R02W, R03W 48.000 T. S. DUDLEY LAND COMPANY, INC. 6.0 $1,800.00 $300.00 $900.00 0.20

1 42143 UNION 10, 15, 16, 17, 18, 19, 20, 21, 22, 7, 8, 9 T22N R03W 36.000 T. S. DUDLEY LAND COMPANY, INC. 36.0 $10,800.00 $300.00 $5,400.00 0.20

1 42144 UNION 17, 18, 19, 20, 21, 24, 26, 27, 28, 29, 30, 31, 32, 33, 34, 4, 5 T21N, T22N R02W, R03W 48.0 T. S. DUDLEY LAND COMPANY, INC.  $14,400.00 $300.00 $7,200.00 0.20

1 42145 UNION 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 32, 33, 34, 35, 36 T22N R01E, R01W 72.0 T. S. DUDLEY LAND COMPANY, INC. $21,600.00 $300.00 $10,800.00 0.20

1 42146 UNION 1, 10, 11, 12, 14, 2, 26, 27, 3, 33, 34, 35, 36, 4, 5, 6, 7, 9 T21N, T22N R01W, R02W 94.0 T. S. DUDLEY LAND COMPANY, INC. $28,200.00 $300.00 $14,100.00 0.20

1 42147 UNION 1, 11, 12, 2, 3, 31, 32, 33, 34, 35, 36, 4, 5, 6, 7, 8, 9 T21N, T22N R01E, R02E 48.0 T. S. DUDLEY LAND COMPANY, INC. $14,400.00 $300.00 $7,200.00 0.20

1 42148 UNION 10, 11, 12, 13, 14, 15, 16, 17, 18, 20, 7, 8, 9 T21N R01W, R02W 103.0 T. S. DUDLEY LAND COMPANY, INC.  $30,900.00 $300.00 $15,450.00 0.20

1 42149 UNION 10, 12, 13, 14, 15, 16, 17, 18, 20, 21, 22, 23, 24, 7, 8, 9 T21N R01E, R02E 58.0 T. S. DUDLEY LAND COMPANY, INC.  $17,400.00 $300.00 $8,700.00 0.20

1 42150 UNION 10, 14, 15, 16, 17, 20, 21, 22, 23, 24, 25, 26, 27, 28, 34, 35 T21N R01W 81.0 T. S. DUDLEY LAND COMPANY, INC.  $24,300.00 $300.00 $12,150.00 0.20

1 42151 UNION 1, 2, 20, 21, 22, 23, 24, 25, 26, 27, 28, 3, 30, 31, 32, 34, 35, 36, 5, 6 T20N, T21N R02E, R03E 74.0 T. S. DUDLEY LAND COMPANY, INC. $22,200.00 $300.00 $11,100.00 0.20

1 42152 UNION 10, 16, 17, 18, 2, 27, 28, 29, 3, 31, 32, 33, 34, 35, 4, 5, 6, 7, 8, 9 T20N, T21N R01W 56.0 T.S. DUDLEY LAND COMPANY, INC. $4,500.00 $300.00 $2,250.00 0.20

1 42153 UNION 1, 11, 12, 13, 14, 17, 18, 2, 25, 26, 29, 30, 31, 32, 35, 36, 5, 6, 7, 8 T20N, T21N R01E, R01W 99.0 T.S. DUDLEY LAND COMPANY, INC. $29,700.00 $300.00 $14,850.00 0.20

1 42154 LINCOLN, UNION 1, 11, 12, 31, 36, 6 T20N, T21N R02W, R03W 12.000 NO BID .000 $0.00 $0.00 $0.00  

1 42155 LINCOLN, UNION 10, 3, 31, 32, 4, 5, 6, 7, 8, 9 T20N, T21N R02W 27.000 NO BID .000 $0.00 $0.00 $0.00  

1 42156 UNION 1, 10, 11, 12, 13, 15, 16, 17, 18, 2, 4, 5, 6, 7, 8, 9 T20N R02E, R03E 72.000 NO BID .000 $0.00 $0.00 $0.00

1 42157 UNION 1, 10, 11, 12, 13, 14, 15, 16, 17, 2, 20, 21, 22, 23, 24, 3, 4, 5, 8, 9 T20N R01E 110.0 T. S. DUDLEY LAND COMPANY, INC.  $33,000.00 $300.00 $16,500.00 0.20

1 42158 UNION 13, 18, 19, 24 T20N R01E, R02E 22.000 NO BID .000 $0.00 $0.00 $0.00

1 42159 LINCOLN 19, 22, 23, 24, 25, 26, 27, 30, 31, 34, 35, 36 T20N R02W, R03W 31.000 NO BID .000 $0.00 $0.00 $0.00

1 42160 LINCOLN 19, 20, 27, 28, 29, 30, 31, 32, 33, 34 T20N R03W 44.000 NO BID .000 $0.00 $0.00 $0.00

Permalink Reply by Geoff Jones on July 13, 2011 at 5:35

Looks like SWN is getting this area wrapped up

 

Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 5:48
The fact that T. S. Dudley is the only serious bidder is not a good turn of events for unleased mineral owners.  And the lack of interest by multiple parties tends to support the view that this is a very speculative venture.
Permalink Reply by The_Baron on July 13, 2011 at 6:47
Its hard to invest real $$$ when there has yet to be a productive well drilled.
Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 6:51
Agreed, Baron.  However I anticipated that you would have something to say concerning "block busting"!  LOL!
Permalink Reply by The_Baron on July 13, 2011 at 7:06

I think most players familier with the area are nrevous about all thetracts getting bought up. The problem for outsiders want in, is the shear scope and size of the buy areas. Pinebelt & Triad have been buying long term leases, some up to 8 years. You have to wonder if there is any real push to drill wells anytime soon.

 

J-W has made publc at least five wells, all horizontal that they intend to drill... but have yet to actually drill anything at all. I am curious why they don't back off a little, drill  a few vertical tests before drilling a 7 million dollar horizontal well.

 

Personally, I would not want to be a WI in a 7 million dollar wildcat!

Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 7:08
Amen.
Permalink Reply by The_Baron on July 13, 2011 at 7:08

Did you notice that the tract TS dudley was outbid on, that TS only made a partial bid?

 

 

Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 7:10
Nope, missed it.  I'll go back and look.  Thanks.
Permalink Reply by Sunny Chaw on July 13, 2011 at 7:46

Skip, do you actually think that this will play into the area where Mr. Saunders always speaks of? I did not see that area. Just no state holdings there?

 

Permalink Reply by Skip Peel - Mineral Consultant on July 13, 2011 at 8:08

Sunny, I am simply reporting where T S Dudley has bid on state leases for tracts that they have nominated.  The only LA. Lower Smackover Unit formed so far is in Sections 6 & 7 of 23N - 5W, Lick Creek Field, Claiborne Parish.  That is on the far NW corner to the general area covered by these bid tracts.  No one knows definitively if the L SMK/Brown Dense is productive as there are no wells drilled in this area.  Look at the reference wells listed in the T S Dudley unit application.  Heck one doesn't even appear of sufficient depth to define the Lower Smarckover.  There is much speculation and rumor at this point and little if anything substantive to rely on.

 

http://ucmwww.dnr.state.la.us/ucmsearch_070611/UCMRedir.aspx?url=ht...

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