$38 Million Oil, Gas Lease Sale Best in Decades for University of Texas System

By: Julie Breaux
Odessa American
May 21, 2004, Friday

 The 105th annual University Lands Oil and Gas Lease sale was one of the most lucrative in decades for the University of Texas System.

The sealed-bid auction for drilling rights in the Permian Basin generated nearly $ 38 million, state Land Commissioner Jerry Patterson said.

The average bonus per acre was $ 876, the highest average on record, he said.

"These numbers clearly show the bullish nature of oil and gas investments in the Permian Basin and in particular University Lands," Patterson said.

The lease sale covered 43,300 acres in Andrews, Loving, Winkler, Upton, Crockett, Schleicher and Pecos counties.

Bidding was especially competitive for approximately 10,500 acres of state-owned land in Winkler and Loving counties, said Rick Doehne, a geologist with University Lands in Midland.

Producers believe a prolific natural gas formation being developed extensively in southeastern New Mexico extends into Winkler and Loving counties, said Morris Burns, executive director of the Permian Basin Petroleum Association.

"They've been drilling the fire out of southeastern New Mexico for some time," he said.

Of the 28 tracts available in Winkler and Loving counties, MGM Oil & Gas of Midland was awarded oil and gas leases on 23 for approximately $ 34 million.

"It knocked our socks off," Doehne said.

Other bidders for those tracts included Chesapeake Exploration Ltd. Partnership, Jack Oil Co., CSC Interests Inc., Anadarko Petroleum Corp., Chaparral Texas LP and T. Verne Dwyer.

In several instances, MGM paid $ 1.5 million to $ 2.5 million more than the second-highest bidder to ensure it secured desired tracts.

Odessa-based minerals and royalty investor Kirk Edwards said MGM must believe it is gaining access to a significant source of income to trap so much acreage in one lease sale.

Edwards said the development of sophisticated geologic and drilling technologies plus rising commodity prices have created the "perfect scenario" under which MGM can aggressively drill on those leases.

"They've got a tremendous prospect to go drill or they wouldn't be spending that kind of money at these sales," Edwards said.

James Holtzclaw, University Lands mineral lease specialist, said Greg Mauzy, an independent land man based in Midland, represented MGM Oil & Gas.

University Lands oversees oil and gas activities on 2.1 million acres of Permanent University Fund lands spread across 19 West Texas counties.

Interest and other earnings from the PUF support the operations of the University of Texas System and Texas A&M University.

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