Within the past 3 weeks we have had 2 companies rescind their lease offers on one of our properties. We had a lease with Continental which ends May 18th and so were negotiating with Continental and Kraken for another one. For transparency sake, we kind of let the ball drop on both for about a month. When we picked it up again, Kraken informed us that they decided it didn't fit into their development plan. Then Continental informed us that they weren't doing leases in the area now.
The area is Township 26 North. Range 57 East. Section 19.
Can anyone enlighten me as to why this is happening?
I am speculating, of course, but...in the Bakken, economics are getting skinny at 80 dollar oil. The bloom is falling off the shale bush. Private investors wanting to buy stock in public companies are starting to see the writing on the wall, financial institutions are not as willing to loan money to these shale companies so they can stay on the drilling treadmill. Shale companies that have found their sweet spots don't want to wander far away; they have to service debt or they are done. I am hearing more and more of options not being picked up, big tax write downs after releasing acreage, that sort of thing. Here in Texas landmen are getting cut lose by the hundreds. It is not working, tight oil economics. Plain and simple. Its hard to accept that, so mineral owners don't. Mineral owners have been told time and time again that this was the shale revolution and there would be 40,000 wells drilled in N. Dakota.
Its been 6-7 years since this tight oil thing exploded up there in N. Dakota. If it was so good, at 100 dollar WTI oil prices, why is it slowing down?
Mike, in my opinion the ND Bakken rush is slowing slightly because the truly prime acreage is HBP or in the hands of owners who are too large to be economically force pooled. Last time I looked, there were still 190 active rigs in ND, down from a high of 209. The acreage yet to be HBP is of lesser productive capacity and so you don't have to worry about someone grabbing it before you can drill because there is more acres to be had of the same quality open somewhere else. The frenzy is gone but the drilling seems to have only slowed slightly. Operators are also still drilling the inefficient 10,000 foot laterals in areas that do not have field pressure to support such a well and when production goes from flow to pump, you have the great majority of the wellbore that is producing very little. The operators are drilling those long laterals to hold more acreage, paying little heed to whether they are efficient or cost effective. I have actually seen some evidence of downspacing, SM Energy seems to be very successful with it. Everyone has an opinion and I don't begrudge you yours, but I am curious about the specific evidence of the slowdown you are referring to?
If it's recent numbers that worry you, perhaps this news article may help?
Since there is no rush anymore to grab as much of the prime acreage as there was 6 or 7 years ago, isn't it only natural that operators slow in the production phase?
Much of the area now in production is in the hinterlands and infrastructure is lacking. The gas may not bring alot even as rich as ND gas usually is, but I would want infrastructure to catch up so I at least had a chance to sell some of it.
I personally believe that some of those 19 rigs that left were smaller players who came late and missed the prime drilling locations and didn't have the patience or capital to drill in the less productive areas where it may take three or four years to get your investment back and begin to profit. Continental still seems to be drilling such areas as fast as they can and I trust Harold Hamm to have a reason for doing so.
Beth's acres in Montana are probably no better off when it comes to infrastructure. If she has oil there, someone will come back to get it eventually.
Mr. Kennedy, I agree that sweet spots in N. Dakota are now well delineated and HBP. Myself and many others question the economic viability of shale wells drilled even in sweet spots in the Bakken and how long it will be before debt, liquidity and available capital catches up to those guys that must drill well after well, non stop, to service debt. It is already catching up to them, IMO. As to drilling more expensive wells on closer spacing to increase the rate of extraction (it remains to be seen if "down spacing" is actually increasing URR) well IP's and EUR's appear to be going down, not up as a result of that. Outside well defined sweet spots, economics becomes even more marginal, as you point out. It will take sustained oil prices of over 120 dollars to make flank areas prospective.
I was offering a possible explanation for Beth's predicament. That is of course, a very unpopular explanation as people in America want to believe we are in the middle of a shale "revolution" that will last forever and render us energy independent. The shale industry, still in need of public confidence, and public money, uses things like infrastructure, winter, frac delays, that sort of thing to reassure everyone that things are still peachy. I personally don't think they are peachy. The Bakken may be close to reaching its maximum production rates already. I hope Beth gets her acreage leased someday and she likely will.
I avoid "articles" written by the shale oil industry for self preservation purposes, and what guys like Hamm say about his public company, and like to read things like this that are based on hard, real production facts: http://peakoilbarrel.com/bakken-update-march-production-data/#more-...
Looking at the GIS map of your area, Whiting, Statoil and Continental all have active wells around your area. You are located in an area of proven reserves and it is my opinion that some operator, if not one of the above, will pick up your lease possibly before the end of the year. One factor that is currently occurring in the area is the transportation avenues for the oil. Currently, new pipelines are being constructed which will eventually ease the problem. Also, rig availability is another factor. I know that Continental has recently leased acreage just to the North of you for $1500 and $1800/acre bonus, 3 year lease, 20% royalty. I try not to second guess the actions of operators but again, I think one of these will be contacting you.
Thanks for taking the time to reply and provide your insight. It was very helpful. The article was as well! We'll just sit tight and see what happens in the next several months.
r w kennedy said:
Mike, in my opinion the ND Bakken rush is slowing slightly because the truly prime acreage is HBP or in the hands of owners who are too large to be economically force pooled. Last time I looked, there were still 190 active rigs in ND, down from a high of 209. The acreage yet to be HBP is of lesser productive capacity and so you don't have to worry about someone grabbing it before you can drill because there is more acres to be had of the same quality open somewhere else. The frenzy is gone but the drilling seems to have only slowed slightly. Operators are also still drilling the inefficient 10,000 foot laterals in areas that do not have field pressure to support such a well and when production goes from flow to pump, you have the great majority of the wellbore that is producing very little. The operators are drilling those long laterals to hold more acreage, paying little heed to whether they are efficient or cost effective. I have actually seen some evidence of downspacing, SM Energy seems to be very successful with it. Everyone has an opinion and I don't begrudge you yours, but I am curious about the specific evidence of the slowdown you are referring to?
If it's recent numbers that worry you, perhaps this news article may help?
Since there is no rush anymore to grab as much of the prime acreage as there was 6 or 7 years ago, isn't it only natural that operators slow in the production phase?
Much of the area now in production is in the hinterlands and infrastructure is lacking. The gas may not bring alot even as rich as ND gas usually is, but I would want infrastructure to catch up so I at least had a chance to sell some of it.
I personally believe that some of those 19 rigs that left were smaller players who came late and missed the prime drilling locations and didn't have the patience or capital to drill in the less productive areas where it may take three or four years to get your investment back and begin to profit. Continental still seems to be drilling such areas as fast as they can and I trust Harold Hamm to have a reason for doing so.
Beth's acres in Montana are probably no better off when it comes to infrastructure. If she has oil there, someone will come back to get it eventually.
Mike - Thanks for your feedback and thanks for the article. It was extremely informative! Looks like we'll take the "wait and see" approach!
Mike said:
Mr. Kennedy, I agree that sweet spots in N. Dakota are now well delineated and HBP. Myself and many others question the economic viability of shale wells drilled even in sweet spots in the Bakken and how long it will be before debt, liquidity and available capital catches up to those guys that must drill well after well, non stop, to service debt. It is already catching up to them, IMO. As to drilling more expensive wells on closer spacing to increase the rate of extraction (it remains to be seen if "down spacing" is actually increasing URR) well IP's and EUR's appear to be going down, not up as a result of that. Outside well defined sweet spots, economics becomes even more marginal, as you point out. It will take sustained oil prices of over 120 dollars to make flank areas prospective.
I was offering a possible explanation for Beth's predicament. That is of course, a very unpopular explanation as people in America want to believe we are in the middle of a shale "revolution" that will last forever and render us energy independent. The shale industry, still in need of public confidence, and public money, uses things like infrastructure, winter, frac delays, that sort of thing to reassure everyone that things are still peachy. I personally don't think they are peachy. The Bakken may be close to reaching its maximum production rates already. I hope Beth gets her acreage leased someday and she likely will.
I avoid "articles" written by the shale oil industry for self preservation purposes, and what guys like Hamm say about his public company, and like to read things like this that are based on hard, real production facts: http://peakoilbarrel.com/bakken-update-march-production-data/#more-...
Charles - Good info to have! Where would I find the info on recent leases? Again -- thanks!!
charles s mallory said:
Beth:
Looking at the GIS map of your area, Whiting, Statoil and Continental all have active wells around your area. You are located in an area of proven reserves and it is my opinion that some operator, if not one of the above, will pick up your lease possibly before the end of the year. One factor that is currently occurring in the area is the transportation avenues for the oil. Currently, new pipelines are being constructed which will eventually ease the problem. Also, rig availability is another factor. I know that Continental has recently leased acreage just to the North of you for $1500 and $1800/acre bonus, 3 year lease, 20% royalty. I try not to second guess the actions of operators but again, I think one of these will be contacting you.
Good luck to you, Ms. Fox. I am sure things will be fine for you. Its a great thing to own minerals; America is one of the only places in the entire world that can happen.
I am speculating, of course, but...in the Bakken, economics are getting skinny at 80 dollar oil. The bloom is falling off the shale bush. Private investors wanting to buy stock in public companies are starting to see the writing on the wall, financial institutions are not as willing to loan money to these shale companies so they can stay on the drilling treadmill. Shale companies that have found their sweet spots don't want to wander far away; they have to service debt or they are done. I am hearing more and more of options not being picked up, big tax write downs after releasing acreage, that sort of thing. Here in Texas landmen are getting cut lose by the hundreds. It is not working, tight oil economics. Plain and simple. Its hard to accept that, so mineral owners don't. Mineral owners have been told time and time again that this was the shale revolution and there would be 40,000 wells drilled in N. Dakota.
Its been 6-7 years since this tight oil thing exploded up there in N. Dakota. If it was so good, at 100 dollar WTI oil prices, why is it slowing down?
You mention $80. oil prices, but the price is currently $103.92. Did they go up $24 a barrel in the last several days?
I am pretty sure because of transportation costs involved in getting oil to market, mainly rail costs, the actual price per barrel being paid at the well head in N. Dakota is 80-85 dollars a barrel.
Fortunately, transportation issues are currently being addressed such as new pipeline construction and other infrastructure improvements which will impact this transportation issue in the future. For further information from a marketing standpoint, I refer to RBN Energy, a great source for oil and gas marketing not only for the Bakken but for all shale plays. If you don't read it, try it as it has very interesting articles including some of the most detailed graphs of what is actually occurring.
Thank you, Charles; I read it every day. Along the Gulf Coast we hope the distribution of Bakken oil will be outward, and not downward as we are full up down here in Texas. Its hard to get our oil moved because pipelines are actually shut in by the 3rd week of each month because there is no place to send it. The WTI to LLS premium is all but gone.
Glad to hear that you read the RBN Energy website. Great info on this site, Sandy Feldman, is very good at writing blogs as others that contribute to this site.
My oil has been selling for a little over $90 a barrel, $90.62 looking at March's KOG check stub which I had handy. Gas sold for $5.21 per mcf, mind you, that's after post production costs, Bakken gas is lesser in quanity but it's usually pretty rich. Too bad billions of dollars worth of it have been flared.
Mike said:
I am pretty sure because of transportation costs involved in getting oil to market, mainly rail costs, the actual price per barrel being paid at the well head in N. Dakota is 80-85 dollars a barrel.
All post production costs are negotiable, both sides have the right to say no. I firmly believe that the working interest should be responsible for post production costs even if the working interest is me. If the working interest can not afford to pay the post production costs for someone's 20% royalty interest, then that is a well that should not be drilled.
John F. Fisher said:
Is transportation costs negotiable in an Oil & Gas Lease? Is it shared cost or entirely on the lease owner?