Have an unsolicited offer to buy mineral and royalty interest in part of the Hutchinson County School Land Survey, A-478. Offer is $3600/nma. The property is adjacent to and south of 2 approved horizontal wells going north that CGS has yet to begin work on. Current lease is with CGS.
I realize that evaluating the offer involves making a guess on the odds of CGS expanding south with their next wells; but, need some ideas on what one should be taking into consideration on a decision to sell or wait it out for more potential future gain.
What is CGS’s history and potential that they will continue developing that area?
From what I can tell, it looks like CGS has a working relationship with EOG, such as possibly a DrillCo where they drill the wells then turn them over to EOG (thanks, forum! Link: CGS Operating LLC = EOG and EOG - 3000 leases in Gaines and Dawson County, Texas), and looking at the data shows CGS is playing their cards close to their chest. Their drilling, completions, and production reporting all look like they’re trying to hide either how good or how bad the production is in the North extension of the Wolfcamp play.
My biggest question would be why they haven’t produced, or at least reported production on, the North Wind Unit. There’s one month of production back in May and Aug of 2020 for those two wells (1H & 2H) and it’s terrible. So bad it has to be just a few days of flowback (where the well is cleaning up after production and makes mostly water) that must have been produced and reported. But either it’s A) producing and they’re strategically “behind” on reporting production, B) not producing because it’s so good they want to hold off until they can get more acreage and better commodity pricing, or C) so bad they don’t want to produce it and disprove the productivity acreage before offloading it. I guess D) would be if there was a mechanical or logistical issue with the wells (the 2H survey is cut short in public records…that could be a bad sign for the integrity of the well).
The Santorini Unit is the only one producing on public record and is rockin’ it. My guess is CGS is milking this for all they can hoping investors speculate that all the wells are that good.
The two wells EOG operates South of you are not terribly great wells. Your acreage value 100% depends on the North Wind Unit producing well. The buyer offering the $3600 is probably speculating (or has inside info) on the productivity of those wells.
I own some minerals in this area as well. My son (who works in the industry) has been helping me keep in touch with whats going on in this area. He said over the weekend to me that CGS has a drilling rig onsight of the Milos Unit and that their first well was a directional test well. He thinks that they wouldnt go back to drill another well there if they didnt like what they saw from the first milos test well. And they permitted another horizontal well east of the Santorini too. I hope this all means good news!
I would tend to agree with your son. The only caveat would be that this seems to be the entirety of CGS’s operations, so they may just be going for broke, or have deep enough pockets a bunch of poor wells is doable. Hard to say without knowing the production. The first Milos well is another example of them only producing the well for short time, not reporting much production, then holding tight.
In theory, if their pockets really are deep enough, they could be drilling test wells to see where they want to go to full development next. In a world without cash flow restraints and lease deadlines, you wouldn’t want to produce the wells if you knew you were coming in soon after to drill and complete more wells. The more pressure barrier between the existing wells and the new wells, the better.
Where do you see that it is “shut-in”? On public record I see the 1H is producing and the 2H is DUC (drilled uncompleted). I can only see production through Dec 2020 though.
Ah, I see what you mean. I use Enverus DrillingInfo to grab the data, which should be the same but they have their own way of scrubbing and presenting the public data. I’m trying to figure out the discrepancy between and the TX RRC website. DrillingInfo should be using public production, I but I am seeing two different lease numbers between the RRC and DI. The production profile looks a bit flat but not out of the question…let me dig a little more into what DI is doing…
I believe another option may be that CGS has essentially unlimited funding because it is controlled by EOG Resources. If memory serves, EOG appears to have had a similar arrangement with one Roca Operating in WInkler county. I gather one reason for the cloaked mode is to keep land prices down, similar to how a big company like Oxy might have used four or five contract land companies to lease land in Gaines county a couple of years ago. What happened to that Oxy project?
Yes, CGS definitely seems to be a front for another operator, EOG being the most obvious. I’m just not sure why take it past leasing? Leasing under another name to cloak intentions I’ve seen frequently, but not as common to have the operator under a different name once the well is drilled. I’m not a fan of the practice, whatever it is.
Thank you and others for all the information! However, as a newbie in this field, it is somewhat daunting. My takeaway is that since there is no hurry on our part to take advantage of the offer, there is enough upside potential, given that EOG seems to be involved, to take a wait-and-see approach. Did I miss something?
I think you’ve got it . The general consensus is that there must be something interesting there for EOG to be hiding their activities, so yes, the best idea would be to wait to see what is uncovered. You do run the risk of poor performers being uncovered, but I’d wager the odds in your favor of it being positive towards your value.
NOTE: your personal financial risk tolerance is the biggest factor on if it’s worth waiting or if you should cash out.
Even if EOG/CGS backs away (EOG likes to act like the smartest player in the room; this whole stint isn’t actually surprising), good performance results will attract others to your area as your acreage would be within the new boundary of the play. Without the North Wind Unit, you’re outside the boundary of the main play, and prices will be significantly lower due to this until it produces.
Thanks for your encouragement! We’re playing with house money at this point given the lease bonuses.
How do I watch for production figures on nearby wells? You mention the North Wind Unit, and there are 2 more EOG completed wells close by our location to the south which might be appropriate to monitor.
RetiredInColorado - Could you share the name of the group offering $3600/nma in your area? I am considering selling some minerals I own just south of here, and think this would be valuable information for the group.
You should be able to watch the production come in on the Texas RRC website. You can search for the North Wind lease (which doesn’t exist yet) or CGS Operating to see all their production. If the North Wind Unit has a month where it produces more than 25,000 bbls/month of oil per well, I’d call that positive.
http://webapps2.rrc.texas.gov/EWA/wellboreQueryAction.do
The EOG wells to the South won’t be terribly interesting to watch as all the action has already happened (and they’re just “meh” wells); that part won’t change. CGS needs to prove with the new wells that they can target or complete the wells differently than previous wells to make the acreage attractive for development.
Tracy, appreciate your willingness to speculate. Interesting reading.
Only thing I’d add is that EOG (assuming they are backing CGS) always seems intent on keeping things dark and confusing. But it doesn’t necessarily mean they are hiding something good. After their big Eagle Ford stealth play it seemed to become their standard, which is pretty strange for a public company. I’m thinking about East Texas but folks can probably share other examples where the money and rumors really got flowing but when EOG decided to bail they hardly admitted they’d been there.
100% agree. I should clarify that when I speculate they’re hiding something positive, A) it’s speculation, and B) think of it more as me being 51% sure it’s positive vs 49% negative. I lean positive. The leasing part…that’s standard practice and likely is EOG being EOG. Most likely I lean positive because I’d hate to think all this oddness was to intentionally hide something negative, but this industry is all about playing the cards you’re dealt so it’s possible they’re making the most of a bad situation.
The operator I worked for previously had a play extension we were trying to make work after one surprising good well came through (“why’d THAT well work? That was only meant to hold the lease, not be a barn-burner!”). We held those results close as LONG as possible while we negotiated leases in the area. When the follow-up wells were drilled to delineate the area, they did not work at all and it took us years to figure out why and what we needed to do with it. Oil can come and go FAST even in these unconventional plays, and not even the technical team can always explain it. In the meantime, our investor relations department had to figure out what to do with the data everyone was chomping at the bit to see. It made for a lot of interesting business, ethical, logistical, regulatory, etc., conversations.
Ultimately, it’s the fiduciary duty of a publicly traded company to do what they can (within the rules) to maximize shareholder return.
I don’t think I have any problem sharing the name; but, being rather new to all this, would like some feedback from others as to the pros and cons and appropriateness of exposing an offer that was in a private correspondence.
I too have been receiving offers from companies wanting to buy and one of them was for a similar sounding price (as yours). We are located a bit south of your interests…A-414/League 274. We are seemingly surrounded by wells by EOD-CGS but still question whether it will develop into something. Have not decided yet what we will do but like you, we’re trying to gather as much info as we can to help us form a plan going forward. I think this is great information to know that all the people on this forum are sharing. If I hear any more about the area (your area or ours) I will be happy to share that with you.
. The general consensus is that there must be something interesting there for EOG to be hiding their activities, so yes, the best idea would be to wait to see what is uncovered. You do run the risk of poor performers being uncovered, but I’d wager the odds in your favor of it being positive towards your value.