I really hope someone on these forums can point me in the right direction. I own mineral rights/wells in carter county, oklahoma. One of them is in production and I receive monthly royalty checks. I am trying to secure a mortgage and my lender would like to use the monthly royalty checks as additional income. In order for the royalties to count as income, I have to provide something (letter, graph, chart, etc) that shows that the production on the well should continue for at least the next three years.
According to the underwriter, he has seen such a document before but he's not sure where I could get it. So, does anyone know where I can get information about the estimated production or life of a well??
If you have to have something official, you'll need a petroleum engineer that does appraisals/valuations. That can cost real money. Several hundred and up.
Otherwise, visit the Oklahoma Corporation Commission site and find production statistics for wells in your area. Focus on wells producing from the same formation. FYI - The OCC website is not the most user friendly site you'll ever use. Join yours as well as adjacent County Mineral Groups to get help from locals.
A decline curve can show you how long a well is projected to last. If you project the price over that period then you can estimate the income and even the "Present Worth" (If you are an engineer) or the "Present Value" (if you are an appraiser - same thing pretty much) . I would think the "several hundred" dollars in cost would be the low end of the scale. A typical appraisal fee of the mineral right (assuming a certified appraiser which is a bank requirement usually) might be from $2,000 up.
PS - mortgaging your mineral rights to be supported by the income can be dangerous as a well could be shut in to perform maintenance or simply have a mechanical failure. Be sure you can service the debt without the income from the well.
Yes, a decline curve sounds like what I could use. I'm trying to navigate the OCC website and databases but i'm not finding the information i'm looking for...I may call them and see what they can tell me.
Also, thanks for the warning, it's a long story but the monthly royalty shouldn't impede paying the mortgage.
A well can last 15 days or 100 years. There are a lot of wells near Titusville, PA drilled just after the Civil War that still make some oil.
The decline rate gives you a clue. The production is going to get smaller and smaller but really never reaches "Zero"... It simply gets to a point where it costs more to "lift" the gas or oil than it makes. It depends entirely upon the price of oil and the cost to lift. If a well is deep, it usually costs more to maintain. So say it costs $1000 a month to produce and sell it and it is only making 20 bbl. of oil per month. 20 bbl x $100/bbl = $2,000...but if oil is priced at $40 a bbl., then $800 is below the cost of production.
In many areas, the wells can be put into secondary and tertiary recovery which could double the ultimate production. It would require a new infusion of cash and engineering. Typically, a water flood is considered a secondary recovery and a carbon dioxide injection would be tertiary. They are injecting a lot of carbon dioxide into wells in W. Texas from natural CO2 fields in Colorado, transporting the CO2 from there in a stainless steel pipeline.
A formation is like a sponge. You can shake a sponge and get water out of it. You can squeeze it and get more. You can twist it in a knot and get even more. But the sponge is still wet. Thats the way fields are. If oil was stil $20, none of these technologies would be economically feasible even if technically possible.