Comment

Comment by Bob Jenness on April 18, 2012 at 12:13am

This well and pad cost discussion leads to another thread.  I've heard that there's a large individual landowner in Crawford Co. that has been doing his own drilling for many years.  (any posts of details on this would be welcome:-)  In the days of vertical wells, this might have been a viable business model, and I know of at least one or 2 "owners" in Crawford who are big enough to consider it - I bet they're not signed up with either NWPA or CX yet.  While I'm quite fearful for the environmental impacts of DIY horizontal drilling, the total elimination of both middlemen and production companies is appealing.  If only the HW technology could bend sharp enough to work plots less than a thousand acres...

And, by the way, with acreage as big as NWPA or CX, the dollar value is probably big enough to make the purchase and staffing of a drilling rig an interesting business alternative.  Such a driller might benefit from "wholesale" lease rates, most favored terms with landowners, holdings big enough to plan both pads and pipeline access, etc.  Comments, anyone?  (I know it's far from today's business model for either entity)

Comment by Bob Jenness on April 17, 2012 at 11:59pm

Can we expand on the cost of a well pad a little?  My model says that the "cost of a well"  is about $5 Million, but I talked to a few folks in NWPA that should be expert, and they said that this cost is coming down.  We would  expect it to, since horizontal drilling is a relatively new technology, and there's probably some learning curve yet to be experienced.  A Horizontal Well   (HW) pad is a much bigger thing than the old scattered vertical-only wells, so the landowner impact and driller cost of land (either buy or lease, in addition to any mineral rights) should be a factor, and I suspect that over time in NWPA, this will go up.  On the other hand, HW lengths seem to be increasing, currently at about a mile, which might further reduce per-well cost and number of pads to be built.  This might affect the rate of drilling progress on a large lease holding.

The cost of a pad vs "outfit" size doesn't seem to be a factor.  If a driller is going to complete a well and pad, they have to be big enough to eventually spend what it will cost.  Unless they have a very slow drilling plan, don't actually plan to pay bills, or, as you suggest, have a "sell out early" exit plan.  I talked to one very large outfit that has big (vertical) production holdings in NWPA, and they admitted that they don't yet have a horizontal plan for their holdings, so I expect they don't have much data that we could use, either, even though their number of wells might be quite high.

Comment by Sam Douglass on April 17, 2012 at 3:55pm

Mabe I missed it but I was not able to google up much info on Adapt Energy as to how many wells drilled etc.  The large outfits that can spende $15 to 20 million on a well pad seem to have more extensive information.  I did not check on the number of wells drilled in Ohio or Pa.

The offer seems low enough to make it profitable to sell any leases to a larger company at a profit.  Need more checking.

Comment by Sam Douglass on April 17, 2012 at 3:41pm

Terms can be used in different ways but I think the term mineral acres used to distinguish from surface acres.  It is not unusual for the minerals and/or the oil and gas [in pa, for some reason the courts do not think of O&G as minerals - but there is a case pending that raises some questions about that. The term "net" acres is usually used to distinguish from gross acres.  A 50% interest in 60 gross acres is 30 acres.

I am a little confused by the talk of registered survey.  Ohio requires a survey to be filed or recorded, but I am ignorant of a requirement like that in PA.  Anyway, the acreage is what it is.  Some surveys stating acreage may only count usable acres up to the edge of a road, stream or lake when for undeground mineral purposes you may own a portion of the minerals under the road etc.  Happily, when royalties are split among unitized tracts there will be accurate acreage surveys of all the land included. Old surveys [and tax records] are likely to be the most inaccurate.

Comment by Jim Litwinowicz on April 16, 2012 at 3:06pm

warjr; a delayed rental lease is one that pays you a rental payment each year. A paid up lease is when they make one single payment the first year and it covers the first term of the lease, typically five years. Most leases are now paid up leases. The downside of the delayed rental lease is that all rental payments stop as soon as they drill and pay royalties. So you may only get paid for one or two years.

Kim; spot on. Mineral acres is what rights you actually own.  Often the surface rights and mineral rights are different. Some may have willed to an heir generations ago. Or sold off to pay some bills. Or an old right of way issue....many things. And yes, register the survey with the courthouse.

Comment by gary smith on April 16, 2012 at 1:12pm

the other reason to register ,other than that is what the oil company bases the amount of property you have,is that the first survey in a group of properties is the one that sticks. you said you came up with more than you thought you had. so it would seem your neighbors are not surveyed yet. get it registered. first survey counts.

Comment by rex roae on April 16, 2012 at 1:07pm

Thanks Kim for the help. 

I gave ADAPT our info after contacting CJ and that's what he asked me. 

Comment by Kim Conaway on April 16, 2012 at 12:37pm

Didn't know you had to register a survey.  Will have to look into that.

Comment by gary smith on April 16, 2012 at 12:19pm

kim, make sure you register your survey at courthouse. sometimes the surveyor doesn't do it. you  have to.  he probably told you that.

Comment by Kim Conaway on April 16, 2012 at 11:54am

I just googled the mineral acre versus surface acre.  If an individual owned 100% of the mineral rights below 160 surface acres they would be said to own 160 "net mineral acres" because 160 "gross acres" X 100% min rights = 160 net mineral acres. Now suppose that the person only owned 50% of the mineral rights under 160 surface acres (imagine the owner inherited them along with a sibling who owns the other 50%). In this situation the owner would own 80 "net mineral acres". 160 gross acres X 50% mineral rights = 80 net mineral acres. This is often abbreviated to "net" and "gross" acres. Finally, a lease bonus is paid based upon an owners net mineral acres - not gross acres. Therefore the owner of 50% of the minerals under 160 gross acres would get a bonus (at $440/ac) of 80 net min acres X $440/ac = $35,200.  Did Adapt get the 35 acres from the courthouse?   We just had a survery done and we own more than courthouse shows.  Was told by Jim on here that when looking for offers we will need to submit our survey to company to make sure we get paid for full acreage.

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