Checking to see if anyone has any insight on this letter I received. History of the Boy Scott 5 well, what it means for a company to “re-enter” a well? 10 acres seems like a tiny spacing unit, is that the standard size for a vertical well? Why am I hearing about a well drilled in 1993 that shows up under title as involving me, but I’m not leased, and it’s not active. Was it plugged and they are gonna turn it into a horizontal from that plugged hole? The re-entry cost doesn’t corroborate to cost for horizontal. Are leases getting 1/4 or 1/5 with better bonuses in this area?
Thanks in advance for helping, and to everyone participating in this wonderful forum!
R e : SW/4 NE/4 NW/4
Section 9-T5N-R8E
Hughes County, Oklahoma
Dear Mineral Owner,
My client, Neese Investments, LLC, proposes to re-enter the Boy Scott 5 located in the SW/4 NE/4 NW/4; Section 9-T5N-R8E, a ten acre drilling and spacing unit. The Boy Scott 5 was drilled in 1993 to a total approximate depth of 1087 feet. Our preliminary title check indicates you may own an interest which is currently not leased. In this regard, we ask you to consider one of the following alternatives relative to the project. Please make your election below and return to the address, e-mail address or fax above and we will mail an oil and gas lease for your
signature.
( 1 ) Lease your interest to Neese for a cash bonus $75.00 per acre, royalty provision of 3/16* for a two
year primary term.
( 2 ) Lease your interest to Neese for a cash bonus $100.00 per acre, royalty provision of 1/8* for a two
year primary term.
(3) _ 1 elect to participate in the project by paying my proportionate share of all costs attributable thereto.
The estimated cost for the re-entry of the above will be $150,095.00.
The well is Boy Scout 5. The well produced from 1993 to 2008 at VERY low volumes of oil. They only picked up about once a year or every few years. These shallow wells may be spaced closed together because the drainage area is so small. The TD was 4287. The operator may be interested in going back in to try for a different reservoir. The first one was the Allen/DesMoines. which was at ~1067’ They are probably not going to use a hole like this one for a horizontal well as the well casing is small and the well is older. The price they gave for drilling is for a shallow well or maybe directional. Most of us would like the larger royalty. Given how shallow this is, 3/16ths is probably the best you will get. The only other two leases in the section recently were at 3/16ths. Neese Investments-the current operator of the well.
Investing in the drilling is not for the novice. One would need deep pockets for well expenses for possibly decades, good accountant, good attorney, drilling insurance, etc. .
M_Barnes, thanks for sharing your information. It is always so very helpful and appreciated.
My big curiosity with this is….
With a well this small, it seems like handling the lease and negotiations is much different than with a big horizontal. Since it’s only spaced at 10 acres there is low number of lessors involved. It’s not exactly a well that is going to generate third party interest, so hard negotiating deductions and other Exhibit A clauses isn’t likely to turn out favorably as the operator doesn’t really have any competing interests.
Is some of what I’m thinking sensical or is it a bit presumptuous on my part? Cuz this sounds like waiting for the pooling order is most likely the best case scenario, as the operator is not going to offer better lease terms than state mandated. And with a few 3/16 royalty interests already signed, that royalty would be available at pooling with the state required lease terms.
With only recently inheriting minerals, I’ve had experience in signing one lease and it was for a new 2-mile horizontal. This seems much different than that.
You are correct in thinking. You do want to get a lease with no post production charges, or the operator can eat up a lot of your already small royalties with those extra charges. With a well this small and a small operator, the drill or not drill economics are skinny right now. No guarantee that it will happen until better times. You might lease and hope they drill or wait for a bit more iffy pooling just because of oil prices being down for the next year or so.
So if I’m reading you right, negotiating favorable terms now at 3/16 with no post production charges, or at least a Mittelstadt Deductions Clause, might prove to be a little better than waiting for pooling to possibly occur down the unknown road?
One, I get a small signing bonus now presuming lease terms are favorable(no deductions). Two, if pooled down the road it might be “a bit more iffy pooling.” And by iffy pooling you mean, I might not get a pooling offer with 3/16 royalty, but less than 3/16? And this is because energy prices are trending low?
I’m still waiting to hear back from the operator since they ran title, so I can ask how much of the 10 acres involves my minerals. It’s possibly a decent percent of this tiny well as I have 2/3 of the 20 and 10 acre parcels purchased all over Oklahoma by my family back in the early 1900’s.
The operator may have started leasing when oil prices were close to 65. They are heading south for a bit. He may stop leasing now or will lease and then drill in a year or two when prices look better, so that would delay pooling until then. You can see how much your acres adds to his set that he is trying to lease and then see if you can get a lease now with a good set of clauses.