Pros And Cons Of Leasing Eagle Ford Shale To Large Companies
The Eagle Ford shale is the hottest oil and gas prospect in the country right now, period. More and more major companies like Texaco, EOG, XTO and others are moving in to South Texas and leasing up acreage for drilling. So, if you are a landowner, large or small, and have been approached by more than one oil and gas company, which one do you go with?
The most obvious inclination might be to go with the one that is paying the highest Eagle Ford shale price per acre. Your upfront payment for the right to drill for a number of years might be quite high. Keep in mind you must also work out how much royalty you will get. It you are a large landowner you are more in a position to negotiate royalty payments, or what percentage of production of oil or gas you will get if a well is completed.
Some small oil companies, in order to be competitive, are more flexible in terms of negotiating your royalty percentage. Also, they may promise to drill a well sooner, rather than later, in trade for a smaller price per acre.
Tip. If you don’t have an attorney at this point, get one fast. The money he or she will cost you will be worth it.
The Advantages of Leasing Your Eagle Ford Shale Property To A Large Company
There are advantages to leasing your land to a larger company, such as Petrohawk, Conoco, Texaco, EOG, XTO, etc. The main reason is that they have experience in making good wells in shale. Drilling in the Eagle Ford shale, and the technology required to do multi-stage frac jobs, (high pressure fluid pumped into the well to break the shale apart), is a steep learning curve for small companies. Big operators do not reveal their secrets but companies like EOG have drilled hundreds of wells in the Barnett shale near Dallas, which has a lot of similarities with the Eagleford shale.
A large company may sit on the lease it made with you longer, but in the end may drill a better, and more productive well. A small operator will likely not have the experience, capital to apply the right frac job, afford the best directional drilling company, rigs, etc.
In the long run you may be far better off by taking your chances with a large company. In a formation like the Eagle Ford shale, which has oil and gas, in some quantity, almost completely throughout the “hot zones”, there is no excuse for an unproductive well if there is another one across the fence. It all comes down on how the well is drilled and if it is hydraulically fractured properly.
Companies such as EOG are leasing up major acreage throughout South Texas, from Carrizo Springs to Cotulla, Fowlerton, Tilden, Three Rivers and farther east.
You might be tempted to go with the first offer that comes your way, but the difference here from earlier years is that the shale is more or less uniform in productivity of some sort. Shale gas and oil does not generally exist in tiny pockets that require 3D seismic surveys to locate.
Holding out for high lease payments can work against you. For example, if landowners all get together and form an informal consensus that their leases are worth x amount and keep turning down offers, an oil company may move on, to where the Eagle Ford shale is essentially the same, and focus their efforts where there are less small landowners to contend with. Your land might be some of the last to get picked up and be drilled and you could miss out on several years of production or miss out on drilling entirely since your land is not big enough for a horizontal well. A month’s production from one well might be more that the total difference in what they offered and what you held out for. You could in fact lose millions of dollars by holding out for a higher amount, even if a well is eventually drilled on your property because you missed several months or years of production.
You really should have a qualified land or oil and gas attorney helping you negotiate. They often know what is reasonable and can advise you. Things like the Pugh clause are important to know about. Without a Pugh clause your whole acreage could be tied up if even ten acres are entered into a pooling agreement with a neighboring landowner.
