Thursday, February 26, 2009

Action in Shreveport

Numerous outlets are reporting the start of drilling on the first urban well in Shreveport (article from Shreveport Times). The well will be drilled this month by Petrohawk and be located near Clyde Fant Memorial Parkway on the site of the former Hamels Amusement Park. The site has been cleared and the drilling should take about thirty days.

This long awaited first urban drilling project will be carefully watched, especially as the municipal areas around Shreveport consider ordinances aimed at minimizing the impact of urban drilling.

The timing is interesting given the fact that it has been reported that Twin Cities Development, a leasing firm with ties to Chesapeake Energy, has stopped negotiating with groups of citizens, instead changing its strategy to negotiate only with individuals. KSLA also reported that the standard leases now require a five year base term with five year extensions, along with lower bonuses. A Twin Cities representative characterized the company's approach as "controlled development," where they selectively will pursue tracts that are close to drilling sites and pipeline access.

These actions demonstrate that the power has shifted from the land owner to the gas companies. Many of the large tracts now have been leased, and the combination of low natural gas prices, high gas supplies, economic recession and the credit crunch have limited gas companies' appetite for expensive new leases.

The end of the KSLA article discusses "forced-pooling," whereby the gas company can appeal to the Louisiana Department of Conservation to force the remaining unsigned landowners in an area into a standard 640 acre unit. The downside for the land owners is that they take the risk of not getting paid until the full cost of the well is recovered (an expensive prospect with horizontal drilling), but the upside is that they can share in the revenue at a higher percentage based on their surface ownership.

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