Replies to This Discussion

Permalink Reply by Finnbear on April 21, 2015 at 1:34am

Pump jacks can run as long as there is liquid to pump. Their duty cycle and stroke speed is largely dependent on the reservoir they are pumping. As long as there is oil in the bottom of the hole every time the pump strokes down, the jack can keep running (pumping). The speed of the pump stroke is adjusted to the point that allows the pump jack to run the longest without pumping the well dry.  Pump jacks are also one of the more cost effective ways to pump oil which is why you see them on so many wells in the first place. Why not look into why the 7 pump jacks aren't working first? It is my experience that, left unmaintained, belts are the first thing to go, followed by electric motors. In some areas, the well may be clogged from paraffin build up. There are companies who do nothing but well service like this. Find one in the area of the leasehold and have them evaluate why these wells are not working in the first place. An in-depth conversation with a petroleum engineer who knows the area well might also be warranted. Are the wells played out? With the high oil prices of the last few years, It seems odd that a producer wouldn't have put those wells back in working order to generate some revenue from them if sufficient oil was still in the ground. With the recent decline in crude prices, now would be the time to buy something like this at fire-sale prices. I think someone wants to sell you a pig in a poke.

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Permalink Reply by Kim S. on April 21, 2015 at 3:19pm

Thank you for the comments. It is my understanding that you can't run a pump jack dry which is why you don't see them running all the time. How do you determine the fluid level with the pump jack? I was going to use the down hole oil pump because they are inexpensive, easy to install, and require no maintenance. It pumps the exact flow rate of the well which maintains a constant flow into the well. 

Based on the comments in this feed I have decided to learn more and not venture into this particular lease. 

How do I find out about past royalties on a lease? I am determined to be a part of this business and really appreciate everyone sharing their knowledge.

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Permalink Reply by Jack Young on April 20, 2015 at 2:06pm

This situation screams trouble to any veteran producer. No production since 2012 (is the lease even valid), 7 of 8 pump jacks out of service (large expense to even see what you have), injection wells (lots of paperwork and testing, only one even had a permit), low oil prices, old wells, no mention of brine production, no developmental acreage. You can't be serious. Give your money and time (and you will spend a lot of both) to charity instead.

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Permalink Reply by Kim S. on April 20, 2015 at 3:58pm

Thank you for your comment. It makes me even more nervous! My reason for even considering this is that I was told that I can have the rod and tubing removed for around $500 for each well. I was going to sell off the rod and tubing and the pump jacks to pay for the removal service and install down hole oil pumps. I was told that it would be easy to sell these things. Since the lease includes a disposal well that has a permit I was hoping to pump the salt water into the disposal well. I'd heard about this lease through an acquaintance. Is there another way to find leases that would be a bit more trustworthy?

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Permalink Reply by Jack Young on April 21, 2015 at 1:40am

When oil prices are high there's a market for used rods and tubing and you can sell good used equipment. Right now the market is poor, however, and there's no reason to believe the stuff in these holes is anything other than junk. You mention that there are holes in the wellbore - I assume that means the casing is broken through, which essentially floods the wells with fresh water. Stopping that water requires an operator to set a packer and run another string of pipe between the casing and tubing - very expensive. Downhole pumps aren't a magic cure anyway - pump jacks move more fluid, and neither type of pump will move oil that's not there. And if there was enough capacity for disposing of all the brine in the one permitted injection well, they wouldn't have needed two other illegal ones. Injection wells can only handle so much fluid, and their capacity declines over time. If you have to pay to dispose of your brine you'll have to plug the lease.

What you should do if you want to become an operator is get a job working for an existing operator for a year and learn the business. These old leases aren't so profitable that you can be an absentee owner and make out, you need to get your hands dirty. And the best way to get a good lease is to understand how they work and make the call yourself - asking a consultant to help you will leave you dependent on that consultant for every decision. Oil leases are like dairy farms - you have to be on the job every day, and you'll realize that the first time you spend Christmas Day cleaning up a small oil spill. So I would suggest either finding an experienced partner who needs financial help or getting that experience yourself before you buy. I won't go into too much detail, but there are more ways to lose money on a lease than you can count. So there's no reason to take on that downside unless the lease has plenty of upside. Which a 40 acre property with a batch of old wells doesn't have.

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Permalink Reply by Kim S. on April 21, 2015 at 3:34pm

Thank you very much for your comments. You paint a bit of a scary picture. But I will listen. I'm not going to invest in this particular lease. You are right that I do need more knowledge. I intend to try my best to be successful. I wasn't going to fix the hole in the well bore because it is my understanding that the down hole pump is self contained and will work regardless of a hole. Thank you for educating me about the injection wells. I was told that the other wells just needed to have the permits updated. May not be true! Any advice on how to find a good lease?

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Permalink Reply by Bill Bergseid on April 26, 2015 at 4:42am

Kim-

Given your knowledge of oil production  you should not consider buying ANY lease.  You and your money will be soon parted.

You could consider buying producing mineral interests.  You would own the minerals subject to a lease and just receive a royalty.  Leave the operations (and the expense of operating) to someone who knows what they are doing.

Having said that, mineral interest are hard to buy at an economic price.  You can look on energynet.com for a continuous auction for all kinds of oil and gas interests.  Just make sure that the interests you look at are only minerals or royalty interests. 

Do not buy ANY leases, working interests or operating interests.

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