Shreveport correct not to socialize gas leasing risk

While much attention has deservedly gone to Pres. Barack Obama’s various attempts to socialize risk at the federal level, that issue has broken out at the local level in Shreveport as well.

At this time last year, the frenzy that accompanied mineral rights leasing reached its apogee as natural gas prices hovered at their highest levels ever, dramatically higher than two years previous. Northwest Louisiana got caught in the perfect good storm because just months earlier came confirmation of a huge gas discovery known as the Haynesville Shale. Residents, businesses, nonprofits, and governments suddenly discovered they had a marketable commodity, potentially a lot of it, in the middle of the greatest boom for it ever.

Some were agile and took immediate advantage. On the government side, DeSoto Parish was the nimblest, deciding quickly to use the traditional route of going through the state’s Mineral Board and cashed in near the peak that by doing so will provide benefits for its citizenry (if with wise governance) for years to come. Others, like Bossier Parish, hemmed and hawed and/or tried to do it themselves and eventually were unable to do anything but wait on forced unitization directed by the state. Shreveport moved cumbersomely, in part hampered by already-leased land at next-to-nothing at the instigation of former Mayor Keith Hightower, and hadn’t reaped anything but searched to do so

Individuals apparently fared the same. While some just dove in and got deals of varying worth, a few hired expertise to help them. Others took to the Internet, neighborhood fora (sometimes convened by the leasing companies themselves), and other inexpensive resources to educate themselves on what made for a reasonable lease and negotiated. Some informally banded together or talked among themselves to determine a good set of conditions. These strategies paid off for many such as in south Bossier, where a number of landowners individually negotiated and signed with one of the two big forces in the scramble, Petrohawk, in the $20-25,000 range per acre with a quarter royalty, by the end of summer.

But others gambled with time and organization, principally those with already-existing neighborhood associations. In Shreveport, many eventually coalesced into one group and the associations began to solicit their residents to sign letters of intent to allow the specific association, or in Shreveport’s case the group of them known as the ShreveCenter Coalition, to negotiate on their behalf. The thinking was akin to that used by labor unions in negotiations with managements: the larger the pool of the represented, the more coercive power they had that theoretically would make for a better deal.

The only problem was, the gamble failed. The record prices did not sustain and leasing activity – and return for rights holders – plummeted. So by the time these organizations got it together enough to be in a position to bargain from what they thought was strength, likely those individuals involved had forgone better opportunities if undertaken separately in the past than what they could get now and in the future collectively, in many cases substantially so.

The other major force in local leasing, Twin Cities, which works on behalf of Chesapeake Energy, now dealing with a buyer’s rather than seller’s market decided to forgo negotiating with the associations. That is their right, but it was not taken kindly by the associations which began to implore Mayor Cedric Glover to withhold approving leasing of Shreveport public lands desired by Chesapeake until they would work through the associations. Glover appeared to agree when he made critical remarks about the City Council’s unanimous vote to lease 740 city acres to Twin Cities, and threatened a veto.

For whatever reason, Glover let it go. Politically, a veto would have been disastrous. There are three kinds of potential voters out there, those agitating for him to have the city assist their efforts, those who have leased or who are negotiating that didn’t or wouldn’t get any help from that strategy, and those who have nothing to lease. The latter two groups are larger than the first and they would question why the city is depriving itself of money to support a special interest.

In the final analysis, tying leasing of city properties to negotiating with some collectives is nothing more than a socialization of risk to compensate for bad decisions made by a select few on behalf of less-involved others. Why should the entirety of Shreveport suffer with the loss of potential revenues just to shore up opportunity costs to what appears to be a tactic that went sour – and not even a guaranteed benefit to them because there’s no guarantee associations could bring in a better deal even if they are dealt with in the process. Plenty of other citizens on their own got what they considered good terms, so why should the Shreveporters in these neighborhoods be any exception?