Recently my sister and I have seen our royalties plummet in the Uintah part of the wolf camp. We were a group that was owned by Resolute Energy and just purchased by Cimarex. Are royalties which had been 3K to 5K per month are now down to $800. Anyone have any idea why this is?
any pass through costs on your lease?
Horizontal wells deplete 60-80% the first year. Some of the drop can be attributed to low commodity prices, but most of it is strictly from depletion. The great US shale play is slowly coming to an end, partly because of results, partly due to low prices.
Man that is quite a drop but makes sense.
The surprising thing is Cimarex would just pay off for all of that in February and now it’s not producing? I can certainly see the low prices being a factor.
Cimarex just bought out Resolte Energy for a bundle is what I meant. Seems unfortunate to do that and have these returns.
The idea would be that Cimarex paid a whole bunch for all the future wells they were planning to drill on Resolute acreage. Wells that would keep production going up.
The problem is that by 3Q2019 nobody wants to lend anybody money to drill more wells. Which is how wells get drilled. So if you went and got a bunch of debt to buy somebody else and were expecting to borrow more money so you could increase your rig count and develop that acreage…you are actually finding out that you are struggling to have enough $ to keep the # of drilling rigs you had running prior to the acquisition.
If you are Oxy, and you bought APC, you had 12 rigs running in the Delaware and Anadarko had 10. So suddenly you have 22 rigs. Then you start looking at debt and you start dropping rigs and today you are at 15 rigs and pretty soon they will be running 12 rigs or less again. So basically they bought a ton of acreage that they are not developing. Which makes it a bad idea to buy the acreage.
Nothing too much has changed on the price front. Or well performance. Its just that the capital markets have finally figured out that oil and gas producers have been a terrible investment over a 5 year cycle or so. Thus no money.
Basically the oil and gas business isn’t very profitable. Costs are very very high. Individual well economics are still pretty good, but they aren’t as good as advertised and once you layer in all the DD&A costs its hard to have much earnings. If you are one of the companies who made a major acquisition in the last 2 years, that you don’t have $ to develop, you are probably looking at an albatross around your neck.
It should all self-correct somehow on a long enough time frame. If its a crappy business, people will drop out of the business…supply will go down…then prices will pick up…then it will be a good business…then too many people will get involved and prices will drop and it will start heading for being a crappy business again. Whee!!!
Until then, yes, wells decline very very fast. Month one may be 30,000 barrels and month 12 is 7,000 barrels.
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Thank you so much for that Explanation. I guess it always shocks me how fast and loose people play with all that money!