In response to a recent comment emailed to me, following my publically commenting on the limited drilling activity for the Seaport project on Section 23 (and 14, if not mistaken) I provide below my rebuttal to their email in hopes royalty owners of this new project will become more educated. I hope royalty owners of the Seaport Project in Section 23 of Carter County, recently leased by Continental (CLR), find this useful.
As background, CLR spudded the SEAPORT 1-14-23XHW last May CLR appears to not be aggressive in further developing the field, unlike the nearby SpringBoard and Woodford wells, nor maximizing the one Seaport well’s production (as evidenced by monthly production reports filed with the State of Oklahoma) , despite the current spot price of WTI oil and gas and CLR’s use of free.cash flow to increase shareholder dividends, repurchase shares and buy Permian assets. from Pioneer.
I invite other royalty owners of the Seaport project, including Citation Oil, write CLR and demand the field be developed in the same aggressive manner as SpringBoard and Woodford.
My reaponse:
Thank you for your reply and comments.
As a fourth-generation independent oilman, allow me to counter some of your points.
The Seaport is not producing as expected (e.g., only 1,000 barrels of oil per month reported) because it is is not being developed. The project is in the exact location as the nearby SpringBoard and Woodford projects, wherein these two fields share almost identical initial production characteristics (per CLR) (that is, 1,200+ barrels of oil equivalent PER DAY), with the Woodford, the most recent project, actually enjoying a higher initial production on new wells due to enhanced technologies.
Royalty checks are not being received regularly for the Seaport/Highline project. As an oilman, if I purposely shut-in wells for over 30 days or, worse, don’t produce on a lease when economics are viable to do so, I am in jeopardy of violating my lease and losing it or paying a hefty shut-in payment. This clause is a standard boilerplate oil lease provision. Why? The State of Oklahoma does not take kindly of leases being held without production when the State coffers are better served receiving severance and income tax revenue.
CLR has more than sufficient operating capital to develop the Seaport/Hughline project. As evidence, please refer to CLR’s recent audited cash flow statement. Also, enough capital was demonstrated by CLR’s recent purchase of Permian assets from Pioneer, a 25% dividend increase, and continued share repurchases. They have the money to develop this project, and the ROI should be significant at today’s prices, regardless of any bad price hedging.
In shale plays, shale has to be refracked (if possible) or abandoned, and new drilling moved to nearby sister well locations upon a significant reduction in production from parent shale wells. Pressure declines have more to do with sedimentary rock formations such as limestone and sandstone, where secondary and tetiariary methods are employed to rebuild field pressure, given these type plays are either gas or water driven.
Again, thank you for your reply. As an oilman and royalty owner, I felt the need to respind to your comments based in my working knowldge of the SCOOP, oil production and lease arrangements, in general.
The days of oil companies believing Oklahoma royalty owners being naive is long-gone.
Very kindly,
J