I'm thinking of buying a lease for the first time. I would appreciate any tips or cautions I should be aware of. Should I pay for a petroleum engineer? Thank you very much. Kim

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Kim,

what do you mean?......buying a lease.............you mean signing a lease?.........buying minerals that are currently leased?........

Buying a lease that has eight oil/gas wells. Paperwork shows that they were producing in the 90's but beginning to taper off. I'm new to this so I'm very thankful for any help.

Buying production is a business for people in the oil and gas business, not for

novices.  Asked the very same question two decades ago, let's say by my dentist, I recommended he take his thirty thousand dollars, fly to Las Vegas, and place the entire bet on "Red". If taken, my recommendation to him would have given him more fun and a better chance of winning.

so I guess you are buying producing mineral acres......

a lot to consider unless you are getting them super cheap (like almost free).......

if I were thinking about buying producing mineral acres, the first thing I would want to see is the lease terms...there are a bunch of bad leases out there.....being drilled in the 90's I would assume these are vertical wells, and that the lease holds all acres by production, and any further production or drilling will follow the terms of the current lease.

then I would find out the past royalties and weigh that against past production, trying to figure out if the operator is paying royalties per the lease terms......or ripping of the mineral owner like some are currently doing.

then of course, location........if this land is over one of these shale plays, then I would try to determine the potential value of possible future royalties from horizontal drilling....some mineral buyers were offering in the $15k/acre range for minerals in excellent areas with good lease terms..........now with the downturn in prices, those offers seemed to have dropped to the $8k range or went away altogether.

lots of assuming here....and many more details to consider ............................................ ...also, I am kind of stupid.

You're not stupid! You gave a very concise answer. I will look into all of your

suggestions. It isn't free but I haven't jumped in yet. Still researching. Thank you so much.

How do I check the past royalties or production of the lease? Can I do that on my own? Is there a website? I'd like to be sure that what he is showing me on paper is true.

Hi Kim,

Buying a lease that is on land you own is quite easy in Ohio.  ODNR has paperwork to fill out and the process is straight forward.  Feel free to send me a message if this is your case.  I just went through that.

But buying a lease on someone else's land is quite a different matter.  I can be of no help there.

Regards,

-dan

Thank you, Dan. It is a lease on someone else's land. It is in Oklahoma. Hope all goes well with your lease.

Kim,

Are you buying this lease on your own or as an investor in the project of another?

If it as an investor I would advise caution.

If it is on your own, with little or no experience; again I advise caution.

Chances are that you won't need a Petroleum Engineer, but you will need some professional advice. In order to answer your question fully you will have to explain your venture in more detail.

Hi Barry,

I would be buying this lease on my own.  It is 40 acres, The production record that I received from the current lease holder shows that the production has gone down since 2000 and only goes to 2012.  The owner of the lease states that he hasn't done any work on it and only one of the pump jacks out of 8 is currently working.  The depths of the wells are 800' to 900'. There are three injection wells but only 1 has a permit.  It also comes with 3 100 bbl tanks and 1 large gun barrel.  1 Tulsa 3200 tri plex injection pump.  I plan on having the pump jacks pulled out and replacing them with a down hole pneumatic well pump. Thank you.

It's probably only worth whatever the tangible assets are worth. Hope they don't want very much.

Why down hole pneumatic pumps? Usually, pump jacks are an efficient method of production.

The purchase price is 60k, the main reason I am even considering getting into the oil business is because of the down hole pneumatic pumps.  For a few thousand dollars I can pump on the wells and see what kind of production I get. If the well does not produce we can easily transfer the pumps to another well.  Since I was told a few wells have holes in the well bore and the down hole pump is self contained I thought it might pay off.  I know that the pump jacks are expensive, cannot run 24 hours a day, break often and so on. I just want to make sure I'm getting what I am paying for since this is my first lease.  That's why I'm looking for any advice. Thank you.  

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