I've seen some Wattenberg wells producing 400 - 600 bbl per day plus a lot of gas...just off the top of my head.
PS - John G. was the instructor on a mineral rights course that I took. Now I teach mineral rights to other appraisers.
Derek,
Prime acreage is where geologists have determined 30 ohm or better on E-Logs this usually produces wells with 250K EUR.
Shale wells produce 80% of the oil in first 24 months then trickle to a few barrels a day.
Gal that is a very good area. Great liquids and very gassy. The wells close to you are excellent wells. Pad drilling with multiple wells will net you big royaltys so if you can wait i would if it was me. But keep in mind until operators see $70-$75 per barrel it might be a while until drilling resumes. Good Luck on your decision.
Thank you, Jason. I very much appreciate your answers. Sounds like I should stick it out and be patient! People always say "don't sell"…but I just had to dig further into it for my own education and feeling like I want to look at both sides. Sometimes bubbles do form, and if that was the case- I would have thought seriously about pulling the trigger!
The only high offers I see would be someone trying to get enough land in a particular (proposed unit?) area so that they can control the unit and be the operator. I do see considerable sales in Oklahoma since 1.1.2015 but these are generally somewhat less than the sales in the six months previous...and I don't recall anything as high as $5,000 an acre there but the Wattenberg is "different" as is the "Marcellus" where I just returned from. But as a measure, one operator in PA told me that they had never offered less than $2,500 per acre for a lease and ceased leasing in October, but recently resumed making offers...at $500 per acre. They actually got only $1.10 for some of their gas last summer.
What about now, July 2015, 640 acre pooled unit permitted (not yet drilled) for 2 platforms, 25 wells in Eaton Field, N. edge of Wattenburg, right next to proven, producing well. 50.69 net acres just leased at 18.75, will be paid on 9 of those wells. Have an offer for 8k per acre but think it's worth over 12K. Where do I find buyers myself? Will these wells tap out these acres forever, or is there potential leasing income AFTER all these wells? Is there an advantage to selling just the Mineral Interest, or to selling the minerals but hold on to the future Royalties? Or should I take the 8k per acre deed and run? THANK YOU! Attaced: COGCC pic of property inside permitted wells.
1179-COGCCmappooledwells.pdf (1.85 MB)Nice problem to have. Here are my observations:
Yes, Extraction Oil & Gas ( a small operator) is drilling within its several 320-acre pooled units and your property appears to be pooled into two adjoining units. At some point in the near future you should receive Division Orders and royalty checks. But oil and gas prices are low and will probably stay low for quite a while. I cannot comment on any specific deal without studying the detailed production forecast from surrounding wells. However, the 8-12,000 per net acre sounds like the right ballpark.
If in doubt, you can always sell half and hold on to the other half.
You can find Buyers by searching the Grantee indexes in the Weld County courthouse (on the internet). Start with the names of the parties that have contacted you, so you learn how to identify others.
Chances for potential LEASE income at some future date are practically nil, because anyone of these many wells will probably hold your property "by production" (unless you had a very special Pugh Clause in your lease). So forget any potential value of your Executive Rights. Your Non-participating Royalty Rights (exemplified by your future royalty income) by far hold most of the value, now that drilling is going on. So forget about apportioning your mineral interests.
Note, I have no idea, if Extraction Oil & Gas has the ability to complete their wells and sell their (and your) oil and gas. I do not know, if they have plenty of cash or if they are strapped with high debt that must be paid off in the near future. Many risks for the operator, and many will not survive.
John Gustavson, Certified Minerals Appraiser
Thank you so much, John. I do have a Pugh clause, but our property will be blanketed with wells. 9 wells across sec 24. Can't see how anyone could drill more later.
As a general rule minerals go for two to three times current lease price. Example $500 going lease rate for immediate area multiplied by 3 equals $1500 for one net mineral. Extraction has good daily production and know how to use capital partners afforded to energy companies so in my opinion they will drill and complete to hold acreage first but they plan to test some pad drilling very soon as well. Service companies have come way down so with $55 oil Shale drilling at a responsible pace is more then achievable/profitable. If you want to sell now you will do fine but holding out for more has some risks in this very volatile commodity market. Good Luck
Great info, Jason. Thank you so much! May I ask, what is 'testing pad drilling'?
Easy, some of these zones are 100' - 300' thick and frac'ing may only affect 50' or 100', therefore, they have room to go directly beneath the existing lateral. Further, one has to vet each lateral and see what's what. In one situation I appraised, there were 20 wells affecting 2 sections but these was almost all "cross section" wells that mostly lay in other units, so there was still untapped areas.
There is a limit to how cheap they can go, and drillers and explorers are falling by the wayside every week. As John noted, some operators are in big trouble and they cannot borrow their way out. I was looking at recent activity in an OK courthouse and one of the biggest mineral buyers in 2011-2014 now has numerous attorney liens against it for unpaid title work. Another "sale" of minerals was to satisfy Chapter 7 liquidation. $55 a bbl. is unsustainable from the sheer economics of it. And some outfits have privately admitted they actually haven't made a profit yet. Weld Co. is one of the better places, but it is no panacea either.
Very interesting, TL. Wow. So many unknowns. May be time to strike while the iron is hot
The early Shale Wells were 1 or 2 per section (square mile) and lately a hand full of operators have been drilling between 8 and 32 wells per section. The niobrara chalk/marl/shale has up to 4 benches depending on the area and so far the completion engineers have found no communication between wellbores so testing of single pad and multiple bench wells is being done with pretty good results so far.
Some operators by the time they lease/buy minerals and drill multiple horizontal wells will have $150M to $200M invested in just one square mile. Its quite extrodinary if you think about it.
$90 Oil with insanely over inflated services company priceO from 2010 to 2014 is the same as $55 Oil and 30-40% service discount, happening here and now. The glut in the market is supressing prices but we all know that will only last so long. Weld Operators have a 1 mile lateral down to $3.3M drilled and completed, from $5.5M-$7M when the rush to hold leases was going on.
Exactly the case here. Extraction O&G must have some deep pockets. Looks like 25 wells permitted from 3 pads in 1 sq mile. And did I read correctly, over 2 miles deep at the end? Didn't look at all of them - so they probably each go to different depths to test the benches?
No, the wells are not twice as deep at the end. The two-three miles are the combined length of the vertical part plus the horizontal part.
Extraction Oil & Gas is a niche player. I know their management from the past. They are privately held, so there is no public financial data available upon which we can base their strength or weakness to continue drilling.
Major investors include Yorktown Partners, which certainly can swing large financial investment, but which also has its own investment rules (and needs return on its investment or an exit strategy in form of sale of the company).
Big question for such an operator is "at which oil price is it profitable to drill", and, if not now, then "where do we drill just one or two wells to hold the leases" while waiting for better days or a bigger oil company with money?
John Gustavson, Certified Minerals Appraiser
Exactly John. Elsewhere I posted the gross numbers through 2014 for the Fayetteville Shale that my estimator prepared. The average well has some 1.5 BCF, which at $3 million per well (7500 of them) does not leave much room for "profit" after paying expenses and royalties.
Right now I am seeing prices as low as $2.40 for gas, and I suspect by the end of summer, those numbers may be in the $1 - $2 MCF range.
Yes, the rates were high, but not that high. Outfits like Weatherford were being pummeled long before prices fell last fall. My prediction is that there is so much associated gas that short a major export push (which again is a long term event) I predict natural gas prices will not recover for at least a decade perhaps two.
I just researched some sales in Oklahoma where I encountered liens against oil companies, royalty buyers and at least one small company being liquidated in Chapter 7 - for those of us who went through 1982-1999, we didn't think it was possible for this to last long... it did.
I work for a buying group local to the Denver. We would be interested in making an offer.
Jeremy