I’ve received a couple of similar offers of $5,500 and $6,000 per NMA plus an ORI for > 75% (original lease burden is 79.15%). T20S / R27E / S12, S/2
There is only a single existing well in this section that produced a little bit of oil and mostly gas but it’s pretty old and just barely producing now. So wasn’t sure why the sudden interest but in another post someone referenced the NM OCD map –
https://www.arcgis.com/apps/webappviewer/index.html?id=4d017f2306164de29fd2fb9f8f35ca75
There I found a lot of activity along the border of the adjoining sections: 11 Mad Max Federal wells with Colgate & Permian (27E, S1 and 28E S6) a few that are already online and another 10 proposed for Wallaby Federal in 28E S7 also with Colgate. I’m guessing they are speculating that 27E S12 might have some similar potential as did not see any proposed wells in 12 (and not aware of any other way besides the operators themselves to find this?).
Assuming I’m looking at this right, any thoughts on this offer? Any other considerations or suggestions?
Not if I’m estimating the capital required right. Looking at another AFE (where have a much smaller WI%) from same operator that made one of the offers here. If a project here would be similar (6 to 10 hz wells @ $7M - $10M per) I’d need $M’s to participate.
Yes, I think that is correct, just trying to gauge what options you would consider.
If you own in 40 acres out of say a 640 acre unit (say the S/2 of Sec 12 and 11), and they propose 4 wells in that 640. You’d be on the hook for 1/16th of $35M up front. For most folks, that is sort of a deal breaker. Makes sense. Being a WI owner is kinda big boy territory.
IMO the question then becomes, what is the appropriate bonus for a 25% royalty lease in this area? I’d guess it’s higher than $6k/NMA, but probably not crazy high.
@Darin my family has interest spread out & got proposals a couple years back in that area and decided to participate. They had problems drilling that we were liable for and cost us a lot of money. We just sell anything with cost now and put it in safer investments. Just my two cents from our experiences in the past.
A wise decision. For those not trained and/or steeped in the upstream business of drilling and producing wells, it is almost always a poor decision to participate. While there are exceptions - the exceptions prove the validity of the general statement - that’s whey they’re called exceptions.
@Lee_Ann Thanks for the context. As discussed in the previous posts, the capital required to participate is significant, and that is before any unexpected expenses like you ran into. I might keep a small WI% but similar to your recommendation, more likely I’ll sell with an ORI and invest elsewhere.