More important is the oil %. In the main Delaware “fairway” somewhere between 70 and 80% would be excellent. As leases move to the southwest (from the main “fairway”), wells tend to be gassier, less oily and have reduced cash flows.
Question : Having trouble finding out what the taxes deducted from my royalty check under “owner interest section” are. Who do they go to, Reeves county, the state of Texas or who . They are not deducted from the total on my 1099 so not Federal.
Thanks
This is severance tax paid to State of Texas - oil is 4.6% and gas is 7.5% rate on Gros revenues less costs charged. There is also oil field clean up fee of $0.00625 per bbl and $0.000333 per mcf. You may have other cost deductions for gathering, treating, compression, etc on your check unless prohibited by your lease. Or those costs may be netted out of the gross sales. The 1099 reports the gross royalties, rather than net royalties. You report on Schedule E and deduct the severance taxes and other charges. Some companies will note those charges on the 1099 and others do not. It is your job to keep track of those charges and deduct them. Depletion is 15% of gross sales. Finally, if the oil company has qualified the well for a lower severance tax rate (such as low volume gas well at low prices) then you should only be charged that lower tax rate.
Will-
1679 BOE is very good, even for a peak number, but peak numbers are not very useful. 30 and 60 day average initial numbers are better, but decline rates are still very steep, and 50%-75% within the first year is common. Because of the high initial production, it shows the importance of bringing in a well when prices are good.
Has anyone had any dealings with Wildhorse Interests out of Midland? We have minerals in Sec 294 Blk 13 that they are interested in.
Doug, we have talked to Colt Murphree numerous times in the past 10 years but never leased with him.
Mel, if you are being asked to accept a lease offer 6-7 months before your current lease expires, it probably means one of two things is occurring. 1) The oil company may be presenting you with what would be classified as a “top lease”. This is a lease that only takes effect if/when the existing lease expires. 2) The oil company, if they are the owner of the existing lease, may be asking you to sign a “lease amendment”, with the intent of extending the primary term of your current lease for a number of additional years. It sounds like Anadarko is trying to do the latter.
In general your ability to negotiate a better deal will be more favorable for you when the base lease expires, as at that point there will be more parties willing to lease the property, and thus competing bids. That said, if enough mineral owners in the section refuse to sign the lease amendment/extensions, Anadarko may just go drill a well in order to hold the acreage. That wouldn’t be the worst thing in the world as the royalties would be better than the bonus.
If I were in your shoes I would wait until the expiration of the primary term. 100+ net mineral acres is a lot, and Anadarko will probably become more desperate to get it leased as the primary term expiration gets closer. If you do sign the lease extension/amendment, I would use this as an opportunity to secure more favorable lease terms if you were unhappy with your existing lease.
In reference to my previous comment on a lease offer to blk 2 sec 31 (expires 11/2016), is there any advantage/disadvantage to reaching an agreement to the lease offer now or waiting to later on, say around September/October? I would appreciate your thoughts.
FYI, we have agreed to allow our current operator on a couple of tracts, extend our leases with them. The leases had 7 months remaining and as the company did not want to drill, they agreed to what I believe is an excellent price ($3,500/acre).
I have taken the “what if” out of the situation and am happy with the 3 year + seven month deal
It all comes down to each person’s own cost/benefit analysis. With large tracts like Mel’s tract, in that area of northern Reeves County, I’ve seen operators pay over $5,000/ac when the operator found themselves in a position that they were going to lose the lease to a competitor. Anadarko has already invested in that lease once, so it would be a complete loss for them to have a competitor step in and get it. Smaller tracts on the other hand do not command the same level of bargaining power. Something to keep in mind is that operators in that part of the world are able to sell HBP (held by production) acreage for $30k/acre. Shedding a few thousand per acre off your profit is worth it when the alternative is the competitor getting the lease on a large tract.
Thank each of you for your comments. This is a family estate and we all try to be on the same page, so I am gathering information for all to consider. I’m sure I’ll have more questions later on.
Kevin – the well was spud (drilling commenced) 2-29-16… it has been 33 days since then and they are continuing to drill (‘drilling ahead’) as of w/e 4-1-16. If all goes well, the drilling phase for a typical well in Reeves should end fairly soon. Later – Buzz
We (my siblings and I) have just leased 20 acres that we have on the north side of Pecos to Colgate Energy LLC, with the understanding that they are going to drill south of the airport under the city. I have heard that they talked with the city officials about this. Does anyone know anything more about this plan?
Operators ‘drilling ahead’, Reeves County, w/e 4-1-16
Anadarko 3
Apache 1
Chevron 1
Cimarex 2
Oxy 1
BHP 2
EOG 2
Resolute 1
COG 2
J.Cleo 1
EXL Pet 1
TOTAL 17 Later – Buzz
Kevin - EXL Petroleum is currently ‘drilling ahead’ after 33 days on their SAUL #3571 horizontal Phantom (Wolfcamp) test, 5.9 miles S of Pecos, A398, SEC 35 BLK 4 H&GN RR CO, API 389-35026, spud 2-29-16.
Later – Buzz
Thomas – no, but I’m not surprised with all the activity around the south environs of the city. I can imagine them drilling under city property a la the airport but that would require a lease, of course. Severaql years ago you could observe Chesapeake drilling wells on DFW Airport property. Later – Buzz
Duncan, those sections are in a fantastic area. $3,000+/ac should be obtainable. If Cimarex is taking a pass on the acreage or doesn’t want to lease at that price, there are others that will. Cimarex and Resolute have drilled some great wells on the sections bordering Sections 36 and 38.
Ask for $4,000/acre. Be brave!
OK, stupid question: What is “drilling ahead” ?
Mike – “… continuing to drill (‘drilling ahead’)…”. Later – Buzz