New lease offer in Custer called Soaring 8-3. It’s been over a decade since we leased. The current offer is $100 @ 3/16th for 3 years with optional 2-year extension at same rate. The second option is $150 @ 1/8th for 3 with the option.
Why are the offers so low in today’s market? Got 6 times this rate back in 2008. Landman wasn’t yet authorized to name company seeking the lease.
Any news is welcome!
Today’s market is very different than a few years ago. The economic landscape for drilling money has changed drastically-less money is available. The bonus offers are all about competition, so if you have no competition, no need to offer large amounts. Also tied to the potential of the reservoirs in a particular area. Personally, I never go with an option to extend. The offer for one implies no particular hurry to me. Also, the option is just what it says-an option and if they don’t offer an enhanced bonus for the option, then even more reason not to do it. I also don’t jump on the first offer as there may (or may not) be more later. This area has not seen much activity in the last three years. Chaco Energy has filed one lease in section 28 in 2022 and it was for 1/5th, so time will tell if other offers come.
Offers to lease are all about competition. Apparently no other company is interested in your area- yet!
Simply put, lack of competition. The amount of private equity companies competing for leases to acquire non-operating working interest in Oklahoma is next to none. Therefore the majority of the lease offers, are from the operators, who are no longer having to compete with private equity taking up the working interest within their unit. Covid has caused a lot of concerns which causes investor hesitancy, they are not as willing to pour money into plays that are not as proven. Lastly, Oklahoma horizontal drilling is expensive, the rock is thick, the formations are deep, the reservoirs are not as profitable as initial expectations. Not saying that there is not money to be made, but the Oklahoma oil plays have changed drastically within the last 5 years, the lease bonuses you saw in 2010-2017 are long gone.
Negotiations have stalled. The landman has offered an increase in lease amount/acre in exchange for not having a No Deduct Clause. I have a feeling if drilled, the only money we will see is the lease amount. The reasoning from the landman is it is more expensive to drill a horizontal well under a lake.
My comment about that (as an E&P geologist) is “hmmmmmm…nice try.” The costs to drill have nothing to do with the post production charges as PPC are related to the charges past the meter and after the drilling. I would still want a no deduct clause, a depth clause, a limit on shut in time and no option for an extension.
Must be a very deep lake.
This topic was automatically closed after 90 days. New replies are no longer allowed.