There has not been enough wells drilled to get a solid idea of the production profile in the area of disscusion.It will take time and more wells drilled to see.If future wells drilled in this area cant make better producers than what is seen now the 5000 number is way out of sight.New H wells in Alfalfa Co. come in around 150 to 2500 BOPD and leases are bringing 2000 to 3500.The best ive heard of in Logan is north of Cresent, a Osage well at IP of 1300.I leased for 800 a good while back.That would still be a good price if you can get it.
I said in my opinion, that your minerals are worth $5000.00. Here is my basis for that statement. Lets say that you have 160 acres of minerals. If Devon drills a horizontal well and it comes in at 200 bbls per day, and the price of oil is $100.00 per bbl, then your daily profits before taxes would be $900.00 per day. Take that times 365 days per year and you are looking at $328,500.00 per year. If I bought your minerals at $5000.00 per acre as an investment, my return on that investment would be 41% per year. I guess there are some here that think that that is just not a good enough return on investment, and would tell you that your minerals are worth less. In my opinion, you would be a fool to sell your minerals for less than $5000.00. I actually think that the middle east is going to go to hell pretty soon and you will see oil at 200 dollars per bbl for a year or so, and gasoline at $10.00 per gallon. If so, then you need to figure the profit of your gas sales off your well also, at another 200 dollars per day or more. As for leasing, If I hadn't been a fool and leased my minerals already, I would be asking 1000 per acre or more. But that is just me. If you can find an investment these days paying 20% return per year, please let me know.
DW said:
Robert,
I have some land leased to Devon but this particular property they are only offering $100 per acre, actually $300 for 3 years. I'm not going to take it. What is your basis for saying the sale of minerals are worth $5000 per acre? How do you know there will be wells drilled here within the next year? Who is leasing for $500 to $1,400 per acre because I want lease to them?!
Thanks,
David
Robert Brian said:
Dear sir,
Your mineral rights are worth 5000 per acre. Your land will be drilled upon probably within the next year or so. It is probably leased to Devon which paid probably 150 dollars per acre already. You should have received the money for it, so if you didn't you need to find out why. If I were you, I would not sell. Depending on how many mineral acres you have, you could be getting some big checks in the mail.
I think one important aspect for mineral owners to consider is that wells decline significantly over time. If you have no other place to invest your money I would hang on to them for now. If you have a good place for the money in a business that you know and can make a good return it might be worth selling to use that money in a better place. The tough part with minerals is it is a waiting game with not so predictable results. I have minerals in one of the best places in North Dakota and one time when oil was $140 a barrel back in 2008 the well was going to be drilled, but then prices crashed and here I am today 4 years later finally drilled a well and got the first royalty check off of it, the price received was $71 per barrel. I have had others drill faster than expected as well. Ideally to be a successful mineral owner as an ongoing investment strategy you need to spread the risk out by owning lots of different properties all over the place.
I'd like to see a Horizontal well in Logan come in at 200 bopd and still produce 200 bopd 1 year later, heck I'd find it hard to believe if it were still producing 50 bopd after 1 year. Also, after revenue deductions, Federal and State taxes on this $900 per day you'll probably get $540. More than likely the well will produce 40 bopd after 6 months or 1 year. Also, I'm not getting $100 per barrel on my wells right now and if your going to guess what you'll be getting a year from now it could be that $100 but it could also be $50, then at 200 bopd after taxes, etc your at $270 and if it produces only say 40 bopd your at $104 per day. It's all a guessing game really, a spin of the wheel, look at natural gas prices if one thinks they can predict what future prices will be and a well can go dry or marginal pretty fast.
I think you have it on the nail head. Wells go down real fast and if I remember right, Mississippi wells are short lived. Some of the other sands are longer producer. Then if you live out of state, Oklahoma state tax takes 28% right off the top, then the production tax, etc. So a person is lucky to see about 1/2 of what the well is making. I have had wells in my family that have produced a small amount each month for 30 to 40 years, but no one is going to get rich on them. Like my husband says, you just need a lot of little check to add up each month in order to make a trip to the bank.
Everyone that lives out of state get an automatic deduction on oil check for Ok state income tax. When you do your taxes at the end of the year, a few people gets some money back, but you have to file an out of state tax form. I never gotten any back, but I have other things going in OK. Also, they go by what tax bracket you are in on your Federal tax. So, if you are in the 33%, you are in the top tax bracket on OK state income tax and I think it's 5.25% now, but has been as high as 7% for Ok Tax.
Something else that is happening in Oklahoma as far as taxes go. Some of the new horizontal or U. deep wells may be qualifying for a gross production tax incentive at a reduced tax rate. I know gas wells are in that bracket right now, but oil is to high. If I remember right it was H B 2432 & S B 885 that did the H well reduction, so that will help on drilling lots of well that have lots of gas. But, if gas goes up, the reduction on taxes will stop. Not sure on all the rules regarding that, but I know it's some kind of tax break on the tax forms that my CPA takes care of.
It is very true that the mississippi wells may fall off rapidly. I researched the inflow of the formation and it is supposedly only 17 acres. So probably the production rates will drop off to a sustained production rate for the inflow in that well zone. Devon is drilling now to hold the leases by production. One well every 640 acres. But I think they will come back and drill other wells in the same 640, in the shale, and in the mississippi. So for the mineral owners you may have two or three wells in your unit paying minerals. That is another reason that I think your minerals in N. Logan County are worth 5000 per acre. I am not going out buying minerals. I bought mine when I bought the land a long time ago. Those who are will argue that they are not worth much. I respectfully disagree. I think we are heading for a long term energy crisis with supplies from the middle east interupted by war and transportion problems driving the price of oil up. The adkisson well that came on a couple of months ago is producing in between 200 and 300 bbls per day, with the well back pressured by gas, and the well pump not pumping at full hertz because of the fluid levels. My recommendation is to hang onto your oil minerals. Even with the state taking all they can in taxes, for doing absolutely nothing except checking your mail, owning your minerals can be a great addition to your income.
The average drainage from Miss. in the sooner trend field is 60 acres.17 is not acurate at all.My information comes from veteran geoes in this area, where did you get that number.If the first well is a good one you might see a second in sooner trend Miss.I dont want to say never but highly unlikely you will see three H wells in a 640.
Lee, I researched the mississippi a few months back. I really don't remember where except it came from an oil company website. Perhaps they were talking about vertical completions? If the inflow is indeed 60 acres, then how do the oil companies get away with production zones close to the boundary of their leases? Wouldn't a well drilled along a boundary line be sucking oil in from the neighbors lease?
Hmmm. I guess some operators such as Chesapeake and Sandridge are drilling 4 wells per section already. So much for the 60 acre inflow equation unless they are drilling north and south into other secitions. From a discussion on mississippi lime plays:
"It's a foregone conclusion that the area is going to four wells per section," he said. "That's coming by the end of the year. That means we will have about 750 total locations. Chesapeake, Chaparral, and SandRidge have been permitting wells that represent the fourth well in a section."
It is not uncommon to see 8 wells per section in a vertical miss. play ,Sooner trend is coverd with vert miss. wells. Again it is highly unlikly you will see three H miss. wells in one section.330 ft. is as close to the boundry you can drill without commission approval.Yes, you can drain from the next section but thats is the way it is.Where are 4 H wells being drilled per section.Most likley they are vertical.
It takes a lot of data to determine even a range of drainage possibilities. This data also needs to be daily production data with water production which is not available to the public. Also it will vary significantly across the play, but will be 10-15 years before we truly understand proper well spacing in the horizontal Miss Lime. In the sooner trend it is likely different than Logan county which will be different than Alfalfa county, etc, etc. The commission has basic rules they have iterated to after years and years of testimony, but it is up to the operator to protect their lease lines if they think they might be drained by the offset well.
Ms. Donicht, we have the NE/4 of Section 17 and this section was pooled last year. I have not seen anything in the paper or on the corporation commission web page about any intent to drill being filed in the section. I remember seeing alot of folks from the state of Oregon when the pooling order was approved. About one year ago a well was completed in Section 16 [to the east] and appeared to be promising. Several wells were drilled over the last several months in the section south [section 20], but no production reports published, tank battery is setup. our family rented your property in the late 70s and early 80s. Good Luck
I was just wondering how much land you are talking about in Logan County that you just learned you had inherited and if you are married or anything??? LOL