Tuesday, May 22, 2012

New Entries in Upstate's Shale Gas Sweepstakes: Downstate Venture Capital

This is how Norse Energy's partial asset sale was delineated in a December 2011 corporate presentation, mostly intended for investors, and released around the time of the original announcement in January 2012Sharp-eyed discussion forum participants with the CNY Landowners Coalition were able to read "divested to Hartz," by zooming all the way in on the map legend — even though the buyer was not then or since openly named in any of Norse's long-running slew of press releases.  Though it wasn't clear then who Hartz might be, now the transaction is at least partly of record.
[Original post May 15, but internally updated with some new info.]

Documents put of record in Broome and Chenango counties during late March through April 2012 give some so-far-unreported clues regarding Norse Energy's closure of a partial asset sale — originally announced as going for $26.7 million, and intended primarily to off-load a 22,700-acre portion of its CNY-focused lease and land holdings.

After the buyer's "due diligence," at closing Norse pegged it as a $22 million deal.  Shortly thereafter, the company's 2011 Annual Report was released May 22, which specified the total sale wound up involving 18,477 acres in lease and fee interests, plus a sliding scale series of overriding royalty interests in 133,215 acres, not all of them in CNY.

Given New York's oppressively contentious political environment — certainly regarding shale gas — and given the equally oppressive economic environment for natural gas continentally, your first question might as well be:  Who the hell would buy that?

And, actually, that's the most interesting thing about this deal:  The unconventional, East Coast nature of these newcomers to the rough-and-tumble, generally Midwestern, or Western world of American oil and gas. 

Based on a quick look at the suite of deeds, assignments, and agreements put of record in Broome (I'm still needing some help in Chenango), the Norse assets were sold to a 50-50 partnership involving: 

1) Hartz Energy Holdings, LLC of NYC, which traces its underlying fortune to the sold-12-years-ago Hartz Mountain brand of pet supplies, and which over several decades before and since managed to enlarge itself by hard-slogging work, developing commercial real estate in the NY-NJ area; and

2) Empire State Development, LLC — organized in Delaware, not New York — a freshly minted, generically named outfit which a number of clues point to being an arm of Tinicum Capital Partners, a venture capital house, also out of NYC.

Downstate interests, in other words. 

And not exactly the usual, big belt buckle money from Texas, Oklahoma, Colorado, or maybe Canada, or even overseas.

Now, to me, see, that's interesting.

Relying at my peril on the Internet, this particular arm of Hartz is run by Edward Stern, third generation in a family which has also produced a #79 U.S./#255 World Forbes Billionaire (his father, Leonard Stern, said to be worth $4.2 billion as of March 2012), and which also funded one-time ownership of the Hipster Granddaddy of the reflexively liberal, alternative newsweeklies, The Village Voice (among similar others in several urban markets).

Tinicum is a slightly more obtuse animal, but its Empire State Development efforts appear to be led by partner Alfred C. "Trip" Zedlitz III, who traces his genetic and financial underpinnings to an Oklahoma-based real estate developer who went by Alfred C. "Skip" Zedlitz, Jr., and who died in November 2011.

Interestingly, looking just in Broome County, Tinicum's Empire State Development also appears as a 45% buyer — with two others, 400 Property, LLC of 400 Plaza Drive, Secaucus, NJ (45%), and Marty L. Griffith of 11060 Timberline Road, Houston, TX (10%) — on a single separate transaction structured as a "Hydrocarbon Deed," and involving a 158-acre Town of Colesville parcel.  That's an outright, one-shot sale — not a lease, the ultimate term of which would be conditioned upon achieving production, and which holds out the hope of some day generating landowner royalty tied to that production.  Such a "mineral severance" essentially forever conveys all the underlying oil and gas, all in one go beforehand, together in this case with the right of surface access necessary for getting at the resource. 

Knowledgeable PA and NY landowners have made disparaging remarks, for some time now, after having received mailings from an entity identifying itself as Griffith Land Services Inc. of 11060 Timberline Road, Houston, TX — offering to buy minerals outright.  These same landowners have also connected 400 Property, LLC with Timothy P. Terry, who is listed on at least one Broome County document as separately acting on behalf of Hartz Energy Corp USA with a hartzcapital.com email address.  So this single hydrocarbon deed recorded in Broome looks like it represents an example of a hard-up Harpersvillian who actually took them up on such an offer, and also a second front for Hartz and Tinicum to try getting a foothold Upstate, should shale gas ever be allowed to take off.

The Hartz and Tinicum purchase from Norse is kind of complicated, and may not yet be fully recorded.  But, as best as I can break it down — based, again, largely on what I can see in Broome County, which looks like the smaller portion — it goes something like this:

— Full assignment of 28 leases, mostly in the Town of Colesville (some Windsor and Sanford), and totalling about 2,116 net acres.  Counting extensions, which are generally structured so as to be exercised by the lessee at its sole option, these are listed as expiring between 2017 and 2023.

— Sale outright of three parcels in the Town of Colesville (329 acres).

— Assignment of a 3.75% overriding royalty interest in 20 Sanford and seven Colesville leases, all retained by Norse, but none producing.  Acreage total is 3,400.

— A series of transactions assigning some pipeline rights of way, while also setting the stage for both sides in the deal to work together, down the road, transporting natural gas, should any ever manage to be produced hereabouts.

— There also appears reference to a sale outright of another 49 parcels totalling 3,279 acres in Chenango County (which happened to be listed with the Broome County paperwork), some of which looks to involve fee interest in both surface and minerals, and some ranking as mineral rights only.

On the one hand, I guess, it's good to see some Downstate capital, laying down a substantial bet on Upstate shale gas, even while New York's few, remaining, clear-thinking politicians (even fewer of them from Downstate) still ride the fence on the fracking issue.

On the other hand, though, I wonder what dollar and operational terms the landowners could have achieved directly — if they could have waited until New York State finally came to its shale gas senses, and if they could have figured out a way of cutting out the middle men.  To me, that seems like the strongest argument for the free flow of unmolested information among landowners, and the rise of the voluntary coalitions — in which otherwise free-market-minded landowners attempt to borrow the left's democratic power of "collective bargaining," in this new and creatively unconventional way.

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sweepstaker said...
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