GasDrillingAndProductionLeases_020608

7/29/2019 GasDrillingAndProductionLeases_020608

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CityCouncilBriefingFebruary6,2008

Cityof

Dallas

GasDrilling&Production

Leases


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GasDrilling&ProductionLeases 2

Purpose

BriefCityCouncilonhistoryofthe

Requestfor

Proposal

process

and

results

Provide

detail

of

proposers

background GivedetailofpotentialdrillingsitesonCityproperty

Recommendleaseholder

approval


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History

TheCityofDallasissuedaRequestfor

Proposals(RFP)

in

July

2007

for

companiesinterestedinleasingcityownedpropertyforgasdrillingandproduction


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History 7/20/07 RFPissued

July20,2007theRFPwaspublishedontheCitysprocurement

websiteand

email

notifications

were

sent

to

all

vendors

registered

undercommoditiesrelatedtooilandgas

PhonecallswerethenmadetotheStatestop30gasproductioncompaniesaswellasadditionalcompaniessolicitedbyotherCitiesand/orparticipatedinleasesolicitations

July26

27,

2007

another

phone

call

was

made

to

targeted

companies

10/9/07 Twoprospectiveproposersrequestedtheduedatetobeextended4weeks

11/9/07 ProposalsReceived

12/14/07 Best

and

Final

Offers

Due


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Cityowned

Property

IncludedinRFP


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RFPProcess

TheRFPincludedCityownedproperties

located

on

the

western

edge

of

the

City

and

withinthe

Barnett

Shale

area

of

play

Severalkeylocationsinclude: HensleyField

Florina/Naturepreserve

Areas

GunRange(MountainCreek) L.B.HoustonGolfcourse

Byutilizinghorizontaldrilling,drillsitescanbe

located

at

the

edge

of

these

properties

to

provideminimumimpact


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GeneralRFP

Requirements

MinimumBid

A

minimum

lease

bonus

of

$4,000

per

acre

and

25%royalty

was

established

for

the

North,

South,

andTrinityRiverProperties Nominimumbidfortheairportpropertieswas

setduetotheirlocationonthefareasternboundary

of

the

Barnett

Shale

Outsidecounsel,Moses,Palmer,&Howell,L.L.P.,wasengagedtoreviewandadviseonallaspectsofgasdrillingandproductioninthe

City,

including

the

ordinance,

RFP

documents,leaseagreement,andleasenegotiation


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ProposalsReceived

InNovember2007,theCityreceived

twoproposals

in

response

to

the

RFP

TrinityEastEnergy,LLC

XTOEnergy,Inc.


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InitialOffers

LeaseBonus

InitialLeaseBonusOffersReceivedonNovember9,2007

$32,413,036.61 $11,912,589.41 $26,840,200.95 7680.61GrandTotal

$1,455,071.20$0.00$1,455,071.202499.11EnterpriseFundSubtotal

1176.32Group4 ExecutiveAirport

$1,455,071.20$1,455,071.20$1,100.001322.79Group3 LoveFieldAirport

$30,957,965.41 $11,912,589.41 $25,385,129.75 5181.50GeneralFundSubtotal

$6,655,605.00

$6,655,605.00

$4,125.001613.48Group2A

Trinity

River

$11,912,589.41$11,912,589.41$7,751.00$6,339,753.75$4,125.001536.91Group2 South

$12,389,771.00$12,389,771.00$6,100.002031.11Group1 North

TotalPerAcreTotalPerAcre HighOffer

XTOEnergy,Inc.TrinityEastEnergy,LLC

AcreagePropertyGroups


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InitialOffers

RoyaltyProduction

InitialRoyaltyOffersReceivedonNovember9,2007

1176.32Group4 ExecutiveAirport

15%15%1322.79Group3 LoveFieldAirport

25%25%1613.48Group2A TrinityRiver

25.5%25.5%25%1536.91Group2

South

25%25%2031.11Group1 North

XTOEnergy,Inc.

TrinityEastEnergy,LLC HighOfferAcreagePropertyGroups


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BestandFinalOffers

LeaseBonus

BestandFinalLeaseBonusOffersReceivedonDecember14,2007

*ContingentuponanawardtoTrinityEastEnergyoftheGroup2properties

$34,881,314.07 $14,380,866.87 $29,128,184.86 7680.61GrandTotal

$1,455,071.20$0.00$2,043,232.652499.11EnterpriseFundSubtotal

$588,161.45$500.00*1176.32Group4 ExecutiveAirport

$1,455,071.20$1,455,071.20$1,100.001322.79Group3 LoveFieldAirport

$33,426,242.87 $14,380,866.87 $27,084,952.21 5181.50GeneralFundSubtotal

$6,655,605.00

$6,655,605.00

$4,125.001613.48Group2A

Trinity

River

$14,380,866.87$14,380,866.87$9,357.00$8,039,576.21$5,231.001536.91Group2 South

$12,389,771.00$12,389,771.00$6,100.002031.11Group1 North

TotalPerAcreTotalPerAcre HighOffer


AcreagePropertyGroups


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BestandFinalOffers

RoyaltyProduction

15%*1176.32Group4 ExecutiveAirport

BestandFinalRoyaltyOffersReceivedonDecember14,2007

*ContingentuponanawardtoTrinityEastEnergyoftheGroup2properties

15%15%1322.79Group3 LoveFieldAirport

25%25%1613.48Group2A TrinityRiver

26%26%25.5%1536.91Group2

South

25%25%2031.11Group1 North

XTOEnergy,Inc.

TrinityEastEnergy,LLC HighOfferAcreagePropertyGroups


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LeaseDetails

InitialLease

term

of

36

months

Willallowpropertyaccessforseismictesting

Divisionorder

Leasecovers

all

hydrocarbons

Leaseholderwillindemnify

Providesforshutinroyalty

Willcoverdrillingsites

availableunder

RFP

Initiallease

term

of

36

months

Willallowpropertyaccessforseismictesting

Divisionorder

Leasecovers

all

hydrocarbons

Leaseholderwillindemnify

Providesforshutinroyalty



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LeaseDetails

Cityretainsassetifeithercompany

filesbankruptcy

Cityroyaltiesarenotsubordinatedtootherlienholders

Leasecan

be

sold,

however

all

term

remainintactandarenotnegotiable

TrinityEastEnergywillalsohavea3

yearextension

option,

but

they

must

paytheleasebonusagain


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GFECompliance

Incontrasttosomeentitiesinthearea,theCityunbundledtheleasepropertiesintoseveralgroupsto

create

an

opportunity

for

more

companies,

includingMWBEs,tobidonthepropertyleases

AlthoughthecurrentGFEpolicydoesnotaddresspropertyleasesandrevenuecontracts,proposershave

committed

to

comply

with

the

current

GFE

policyforopportunitiesforparticipationinthedrillingandproductionofthegaslease

The

GFE

compliance

group

will

monitor

the

drilling

operationsutilization

as

the

drillers

apply

for

the

SpecificUsePermits


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Propertyby

Companywith

HighOffer


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XTOEnergy,

Inc.

LeadingenergyproducerinAmericawithalmost1.5billioncubicfeetgasequivalentindailyproduction

andmore

than

7.5

trillion

cubic

feet

equivalent

of

reserves Today,XTOEnergyisproducingmorethan2%of

U.S.naturalgasvolumesdailyandrankingtop10in

the

nation XTOhadoperated10,860wellsasof12/2006 1,000wellsintheBarnettShale,including769horizontal

2nd largestproducerofnaturalgasintheBarnett

Shale,

2nd

largest

producer

in

Texas

and

the

2nd

most

activedriller

of

new

wells

in

the

United

States

XTOstock,upmorethan3400%since1993IPO,hasgrownatacompoundannualrateof31%


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TrinityEast

Energy,

LLC

TrinityEastEnergy,LLCisaTexaslimitedliabilitycompanyestablishedbyKeystoneExplorationLtd.tolease,drillandreducegasfromtheBarnettShaleinaspecificgeographicareathatincludestheland

in

this

RFP

Keystone,throughanaffiliate,istheownerofTrinityEastEnergyandwillmangeandoperatetheproject,includingallproposeddrillingactivities

BasedinFortWorth,Texas

Actively

involved

in

the

Barnett

Shale

beginning

in

2000 ObtainedthefirstdrillingpermitissuedbytheCityofFortWorth Successfullydevelopedtwoprospects intheBarnettandiscontinuingto

accumulateleasesinTarrant,Denton,Somervell,BosqueandDallasCounties

Leasedextensivelyinurbanareas,andworkedwithbothlandownersanddeveloperstominimizetheimpactofdrillingonthesurrounding propertythrough

the

use

of

equipment

specifically

designed

to

reduce

noise

levels

Accumulatedover9,000acresinDallasCounty,generallyeastof DFWairport

Targetfortheareaistolease25,00030,000acresbythespringof2008


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Trinity

East

Energy,

LLC TrinityEastEnergyhasunderleaseorhasagreementstolease

(pendingtitlereview)largetractsfromthefollowingentities

which

are

contiguous

or

adjacent

to

the

Dallas

North

Properties:City

of

Irving,

Dallas

County

Utility

Reclamation

District,UniversityofDallas,VariousHinesEntities,ChemSearch,andVerizon

TheoperatorforTrinityEastEnergy,EXPROEngineering,Inc.,anditsprincipalshavedrilledhundredsofwells,includingmultiple

horizontal

wells

in

North

Tarrant

County

KeystoneExploration,Ltd.,theprincipalentityintheKeystonegroup,hassubstantialassetsandfinancialresourcesthataremorethanadequatetodevelopthesubjectleasesitisaprivatelyheldcompany


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Safety XTOEnergy

TheFortWorthBasinDivisionhadnoOSHArecordableincidents

in

2006

or

2007

among

company

employees

TrinityEastEnergy,LLC EXPROEngineering,Inc.,TrinityEastEnergysoperator,has

drilledandoperatedwellsthroughouttheStateofTexas,includingwellslocatedinthecitylimitsofBayCity,allwithoutincident

TheCityofDallasOrdinancerequiresanemergencyresponseplanandseveraltypesofliabilityinsuranceincludingControlofWellinsurance

Anemergency

phone

number

is

answered

24

hours

aday

and

can

mobilizetheproperoperationsemployeestorespondtoanyemergency


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Environmental XTOEnergy

AmemberoftheBarnettShaleWaterConservationandManagement

Committee

studying

ways

to

minimize

water

useandpromoterecycling

TrinityEastEnergy,LLC The

operator

for

Trinity

East

Energy,

LLC,

EXPRO

Engineering,Inc.,hasarecordofworkingsuccessfullyinenvironmentallysensitiveareas,includingTheNatureConservatoryofTexassAttwater PrairieChickenReserve

in

Texas

City,

the

shallow

waters

of

Nueces

Bay

among

the

shoalsand

nesting

areas,

and

in

Bay

City


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Environmental AsrequiredbyCityofDallasOrdinance,allgaswell

permitswillrequire:

StormwaterPollution

Prevention

Plan

NoticeofintentrequiredbyEPA TCEQs determinationofdepthofusablequalityground

water HazardousMaterialManagementPlan Hazardous

Materials

Inventory

Statement

CityofDallasOfficeofEnvironmentalQuality(OEQ)willrequirewelloperatorshavecleanairplanwhichincludes:

Agoal

of

the

reduction

of

air

emissions

such

as

nitrogen

oxides,volatileorganiccompounds,particulatematter,carbondioxidefromtheprojectequipment

Airqualityplanforheavyequipmentatsite


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Environmental

Recentlyadoptedcodeamendmentsdo

notallow

injection

wells

at

drilling

locationsduetothepotentialforgroundwatercontamination

Allsalt

water

and

condensate

must

be

transportedoffsitefordisposalatan

appropriate

facility


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Park

Land Therewillbenodrillingallowedonthesurface of

CityofDallasparkland The

Texas

Parks

&

Wildlife

Code

would

require

afinding

thatthereisnofeasibleandprudentalternative tousingtheparksurfaceasadrillsite

Whilesurfaceoperationscouldimpactthepublics

useand

enjoyment

of

apark,

the

lease

of

subsurface

rightswouldhavenoimpactwhatsoeveronthepublicsuseandenjoymentofapark

Therequiredfindingmustbemadeafter30daynoticeand

apublic

hearing

ThesubsurfacemineralrightsofsomeCityofDallasparklandsareincludedintheleasepackages


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DrillSiteDetail


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Drill

Sites Only5sitesofCitypropertyareavailableforpotentialonsite

drilling

There

will

be

no

drilling

on

City

park

land Ofthe7,680totalacresofcityownedproperty,only2,243isavailablefordrilling

HensleyFieldaccountsfor710acres LoveFieldaccountsfor1,323acres

Otheracreage

(3

sites)

accounts

for

210

acres

TheRFPnotifiedproposersthatalldrillsitesoncityownedpropertyshallbelimitedtothedesignatedportionsoflandthatarecurrentlyundevelopedandnotplannedtobedevelopedandthatallacresmaynotbeavailableduetoexistingstructuresandotherregulations

AlldrillsiteswillstillhavetoundergotheSpecialUsePermit(SUP)processasapprovedbyCouncilinSeptember2006andmustcomplywithallotherlaws,codes,andregulations


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Potential

City

owned

DrillSites

1. AdjacenttotheCityofDallasNorthwestServiceCenter

2. LoveField

3. VacantlandW.ofWaltonWalkerandS.AndersonAve.

4. HensleyField5. VacantlandW.ofWalton

WalkerandN.ofMountain

CreekParkway


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Potential

Drill

Site

1 Location:

AdjacenttotheCityof

DallasNorthwest

Service

Center

Acreage:

29.20,including

NW

Service

Center

Drillingcouldpotentially

takeplace

on

the

vacant

landNorthoftheServiceCenteriftheSUPpermits


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Potential

Drill

Site

2 Location:

Love

Field

Acreage:

1,322.79

Actualdrillingsitemaybedifficultto

configuredue

to

existingstructures


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Potential

Drill

Site

3 Location:

Vacant

land

W.

ofWaltonWalkerandS.AndersonAve.

Acreage:

3.52


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Potential

Drill

Site

4 Location:

Hensley

Field

Acreage:

709.86


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Potential

Drill

Site

5 Location:

VacantlandW.ofWalton

Walkerand

N.

of

Mountain

CreekParkway

Acreage:

177.94

ThepropertydidnotsellasaDallasCountyforeclosureatthecourthouseandwas

conveyedto

the

City

of

Dallas


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NorthernDrill

Sites

with

Residential

Areas

Drillsites

leased

by

TrinityEastEnergy,LLC

Includes300 bufferaroundresidential

areas


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SouthernDrill

Sites

with

ResidentialAreas

Drillsites

leased

by

XTOEnergy,Inc.

Includes300 bufferaroundresidential

areas


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Recommendation CouncilapprovalofleaseforGasWell

Drilling&

Production

in

the

City

of

DallaswithXTOEnergy,Inc.andTrinityEastEnergy,LLCintheamount

of$34,881,315


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Next

Steps CouncilapprovalofLeaseterms

Leaseexecuted

with

XTO

Energy

Inc.

andTrinityEastenergy,LLC.

PublicHearingforparkland


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Appendix


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GasDrilling

&

Production

Leases 38

Resources TexasRailroadCommissionWebsite

http://www.rrc.state.tx.us BarnettShaleNewsletterWebsite

http://www.barnettshalenews.com

BarnettShale

Energy

Education

Council

http://www.bseec.org/index.php

Documents

GasDrillingAndProductionLeases_020608