Anyone local to the Avoyelles area hearing anything about the Eagles Ranch Well? It appears that they recently finished drilling well and should be moving frac crews on location soon.
Posted: 18 Aug 2017 08:26 AM PDT
|Drill times: Eagles Ranch 14H-1 compared to 2011 Louisiana Austin Chalk wells|
My family has some property in northern St Landry parish, leased to Sentry / EOG. We have also received a solicitation to purchase mineral rights. I find it interesting that they are willing to gamble when our property is over 10 miles from the Eagle Ranch well.
Also, I heard that in addition to the Eagle Ranch 14H-1 Sentry Energy has permitted several other locations. I have not been able to find any of these on Sonris but I am not a frequent user so maybe I missed them? Does anyone have any info on this?
Mineral buyers "gamble" quite often and discount their dollar offers accordingly. If they can buy minerals at a sufficiently low price, they don't have to get every purchase right. They just have to get enough of their purchases right to make a profit. Most initial letters or phone calls do not include an offer amount, they are simply trying to identify those mineral owners interested in a sale. It's called fishing for a willing seller.
Eagles Ranch 14H is the only live permit to drill currently held by Sentry.
Thanks Skip. We were offered a $/acre but it was just by phone / email not a formal written offer, so I'm suspicious. I'm relatively new to this forum and not sure about the ground rules - is it acceptable to post company names / $ amounts for the benefit of others?
You're welcome, Neil. Site rules do not prohibit naming companies nor discussion of their offers. It is against the rules to post telephone numbers and email addresses. If you are receiving an offer chances are good that your neighbors are also. Sharing that information places mineral owners in a better negotiating position should they have an interest in a sale of their mineral rights.
To get started with some fundamentals, here is a link to my blog post on leasing and selling minerals. The last entries cover sales.
Posted: 29 Aug 2017 09:41 AM PDT
Thanks Skip. For the benefit of our neighbors and others in the same situation I have written the below, it is long but hopefully will help in the decision. As background, I have worked upstream oil & gas for almost 40 years reservoir/completions/production so I am very familiar with those operations and associated economics, but haven't been involved with land lease negotiations on a personal level before. The land is actually owned by my mother-in-law and her daughters - since I am the only one in the family with oil/gas experience they look to me and I better get it right or I will be in trouble. So they ask me "should we take the offer or hold out for the big money when they drill a well on our land?" To answer that we should do a probability analysis on just what "big money" means.
The offer was made by Great Southern Minerals for $700/acre per net mineral acre, for every acre currently leased to Sentry. In total they have about 800 acres in 4 separate tracts ranging from 75 to 355 acres. Assuming that they are a legitimate outfit and the deal goes through then the probability is 100% that the ladies would get 800 acres x 700 $/acre = $560,000 before taxes, very nice. The properties range in distance from 6 miles to 14 miles from the Eagle Range 14H-1. So in practical terms it is highly unlikely an extension of North Bayou Jack field would go that far - any wells close to their land would be on a separate structure and there have been no historical wells to any reservoir on their land. The closest was the Palmetto Gas Field which produced from the Wilcox years ago. I understand that they have leased 100,000+ acres and we all know that they won't drill it all up, so without access to EOG's geology there is no basis to say that "our" land has any better chance for a future Austin Chalk completion than any other land in the lease area. So I can assign no better than a 30% chance that our land will be included in any future productive unit.
Given the very large 1440 acre units, at best our largest 355 acre parcel would have 355/1440 = 25% of the unit. At worst it would be 35/1440 = 2.4% of the unit. The average production per well for the three nearby Austin Chalk fields (Masters Creek, N. Bayou Jack and Cheneyville W. is about 410 MBOE. The EOG wells may yield more but who knows for now? Given a 20% royalty interest, $50/bbl oil and a 30% probability of success, the risked value of the future royalty interest income from the property ranges from $29,500 to $307,500, all before taxes. If they are REALLY lucky and get two of the properties included in a unit, then the payout could double to maybe $600k. Also if the ultimate recovery per well increases, oil goes back up to $100/bbl etc etc. It comes down to taking the bird in the hand or rolling the dice if you feel really lucky. But it's at least a good problem to have this morning compared to the poor folks in Texas.
Thanks for the warning Jay. I agree these guys may just be doing a bait & switch and trying to tie up acreage until the 14H-1 comes on production.
You are thinking along the right lines, Neil. I would also figure EOG past performance into the equation and I doubt they would be testing the Austin Chalk in your area if they didn't think that, if productive, the economic area would be significant. Also the performance of wells and fields in reasonable proximity are of limited comparative value unless they are relatively recent, modern variations of horizontal wells. Finally, the choice doesn't have to be that of a bird in the hand considering that your family owns a significant acreage interest. You can always choose to sell a fraction of the whole. Many large land owners will sell half and keep half. Traditionally O&G deals have often been done on eighths. So you could sell 5/8 and keep 3/8 or visa versa. That way if there is a particular thing to be accomplished from a dollar prospective, it can be achieved without a total liquidation. If you accomplish something of value through a sale then you are a winner regardless of whether you ever get a well or significant production. I suggest that you consult with a tax professional regarding the benefits of Long Term Capital Gains. Any mineral interest owned for longer than 366 days will qualify. Good luck.
True, but Chesapeake, Anadarko etc also thought they had it figured out. I would love to see some 1 MMBOE + ultimate recovery wells in that area. If the 14H-1 bombs I can get ready for an earful of "we should have taken the money".