When buying acreage in a hot unconventional gas play, like the Barnett Shale in North Texas, it’s important to not lose your nerve at checkbook time. U.S. shale plays are hot and getting hotter. If your company is late to the party, that’s OK. Just know that the admission price is higher now.
Today, the price paid for entry into a hot shale play is secondary to scope and scale in determining the success of a project, Peter Vig, RoundRock Capital LLC managing partner, told attendees at the Platts Shale Gas Developer conference Tuesday in Houston. Even when the price for acreage seems high, deal economics can still work quite well for producers who do their homework and develop a strong presence in their chosen play, he said.
A prospective acquirer needs to get all the data available and have a sense of urgency about it because of the speed at which deals are getting done today, Vig said. When looking at a property, know the vintage of any wells drilled, the technology used and what the gas price was at the time, he added. If someone walked away from the prospect in years past, it might be time to reexamine the project in light of higher natural gas prices and improved drilling technologies.
When taking the plunge, grab up as many big tracts as possible. Build a big position to gain leverage in the play and control of gathering and other infrastructure. These days a large portion of purchase prices in the Barnett is being allocated to gathering, Vig said. Today the Barnett is said to be the most prolific gas play behind the San Juan Basin.
Southwestern Energy followed a strategy like what Vig outlined Tuesday when the company entered the Fayetteville Shale play on the Arkansas side of the Arkoma Basin in 2003. By 2005 the company had about 600,000 acres. As of May 1, Southwestern had about 880,000 net acres. “They control the play,” Vig said. Additionally, Southwestern bought up area abstract companies, so it cornered the market on title work, Vig said.
A producer that has the foresight to take a substantial acreage position in a play can afford to farm out some of that acreage to other producers that might have more experience in the play. This can provide learning opportunities, Vig said.
It’s true that getting into a play like the Barnett Shale today is tougher and more costly than it was before things got hot. Players entering now will pay top dollar but will be taking a lot less risk than the early entrants did. Don’t be put off by the fact that you’re late to the play, Vig said. Run the economics on today’s price and don’t be put off by what others are paying, he advised.
“Just run the numbers and don’t get hung up on where prices were or what someone else paid to get into the play.” And remember what J. Paul Getty said, Vig advised: “The meek shall inherit the Earth, but not its mineral rights.”
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