Thursday, November 11, 2010

Louisiana Lease Sale; Other Gas Property Deals

The Louisiana Mineral Board held its monthly lease sale yesterday, and properties in the Haynesville Shale region generated an average lease bonus of $9,419.  The weighted average considering parcel size was $9,893. This average is roughly double the lease sales for the past couple of months, but it likely is more a reflection of the quality of the acreage than some overall change in market sentiment towards value.

What is certain is that the prolonged downturn in natural gas prices has not reduced the buy/sell activity in the mineral lease market.  The difference now is the valuation of the properties.

I noted with interest that Chesapeake Energy announced last week that it was the mystery buyer of 500,000 acres in the Marcellus Shale from Anschutz Exploration.  Last month the secretive Anschutz released news that the property had been sold but didn't disclose price or the buyer's name.  This led to much speculation that it was a much bigger player because analysts estimated the value to be $6,300/acre, the price Reliance paid in its Marcellus joint venture with Carrizo Oil & Gas, which implies a value of around $3 billion.  In fact, the property traded hands at around $850 million, an implied value of $1,700/acre.

The original estimate of $6,300 was probably way off the mark because nobody outside the transaction knows exactly where the property is located.  Chesapeake said it is in Pennsylvania, New York and Ohio.  Based on this data, it can be assumed that the portions in Ohio are less economically viable and the land in New York is burdened by the state's moratorium on Marcellus drilling.  As a result, $1,700 per acre might not be as low as it seems.  Some of the property will be re-marketed post-closing, so Chesapeake almost did Anschutz a favor by buying the property to facilitate Anscutz's exit from the area.

Additionally, yesterday, Gastar Exploration announced that it was buying 59,000 acres in the West Virginia portion of the Marcellus for an undisclosed sum.  This comes on the heels of a $70 million joint venture the company completed with South Korean investment firm Atinum Partners Co.

Considering the recent joint ventures and the big acquisition of Atlas Energy by Chevron, the deal activity is definitely going strong in the face of low commodity prices.


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