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[viccarter]

I recently spoke with my father regarding some property he had in the Haynesville Shale area that was coming up for renewal lease this summer. Gas being what it is, we both are extremely doubtful that companies will pay anything but a fraction of 2008 bonus prices for leases. He told me an interesting story, and I will share it. A close friend of his, is one of the largest landowners in the area. This landowner, had previously leased in 2008, but had signed a 2 year renewal option. This works just like any other option in that it means the energy company can "re up" for another 2 years at a set price, which in this case was $275/acre. So all the company has to do is send a check for $275 * number of acres to renew for additional 2 years. This is a large landowner for the area, which geographically is very much unlike the vast ranches of the Southwest. Here, 500 acres contiguous would be a major ranch. The point is, that this guy has a lot of acres in one spot compared to most people. The way these things work is most large landowners are the first to lease when there is a new play. Why? The companies want to tie up as many big parcels as possible on the stealth as cheap as possible before the auction begins to move up, and it tends to move fast. In early 2008 the landowner leased for $250, which at that time was 15% to 20% above market. At the the same time as the lease was signed the option for $275 was put into effect. Well, 4 months from the time he signed the 2008 lease the auction, a distance as the crow flies of maybe 10 to 15 miles from this property was $25,000/acre. 100X higher than what the landowner had received just 4 months before on 900+ acres BTW, so we are talking major, major money. And to make matters worse, he was locked in at $275 for 2 years after the initial 3 year lease was up. The horror! That is not the end of the story. So yesterday marked the end of the landowners initial 3 year primary term. The energy company had until yesterday to send the guy a check for $275/acre and renew for another 2 years. They didn't do it. So what was went from $250 to $25,000. Is essentially not worth $250 again. What makes a market. Cheers!

Edited by viccarter, 11 February 2011 - 01:58 PM.

[dcengr]

People fail to realize money doesn't really mean much.. It's an entirely man made item. Yet since man is a creature of nature, man's perception of value is controlled by nature. Just because we're not smart enough to figure it out doesn't mean there is an external force much more powerful than man in dictating man's perception of value. That is why when someone asks me why fight the Fed.. my answer is, Fed doesn't control markets.. at least over long term. As I've said many times over and over. This is a period of change. It doesn't matter what the old powers want or do to try and hang on. As Egypt demonstrates, the old has to go, the new has to come in. This philosophy extends to our industrial base, our financial base, our political base. Revolution there is just the beginning.. either power get's transfered to next generation voluntarily, or it will do so involuntarily.