Assorted Links (and a chance to win an Amazon gift card)

Oklahoma Oil and Gas Mineral Owners:

Here are a few links that Berlin read over the weekend that will be of interest:

Duke is sad that he didn't buy more Oklahoma mineral rights and royalties in the MERGE before the Governor James B. Edwards well was drilled by Citizen Energy. 

The Perfect Oilfield (unfortunately, not the STACK/SCOOP/MERGE..): 

Once one starts tacking on zeros to the production numbers, Berlin's former tong working brain starts to spin a bit (like chains...). It sounds very impressive and I'm sure the Bedouins of that desert prefer the sovereign didn't own the mineral rights. H/T to Tyler Cowen for the link and the introduction to Shellman's blog.

‘Enormous’ Merge Play Resource Rivals Major World Gas Fields (fortunately, the MERGE, unfortunately not the STACK/SCOOP)

The secret has been out for some time, but the Governor James B. Edwards well drilled by Citizen Energy, has led to the development of the MERGE (...who coined this one and what does it stand for?*) and that means money in the door for Oklahoma oil and gas mineral owners in the Tuttle/Minco/Union City area.

Sheriff Takes Food from Prisoners, Locks up Whistle Blower (weird and legal, but shouldn't be)

For some reason, we take liberty for granted. Vote them out.

More to follow,

Berlin

*the wittiest explanation for the MERGE acronym will receive a $10 Amazon gift card. Email Berlin or comment below. Competition ends close of business 27 March 2018.

Dewey County SITREP

(This post originally appeared on www.oklahomaminerals.com on July 11, 2017)

All,

Oklahoma Oil and Gas Mineral Owners, as companies are consolidating their positions in the SCOOP and STACK, Dewey County appears to be one of the next counties on the frontier for explorationists. While some consider it a part of the NW STACK Extension, we should consider ourselves fortunate that it hasn’t been branded with another absurd acronym.

In the past 12 months, there have been 6,601 leases filed at the courthouse in the county seat of Taloga by numerous operators and brokers. Even with few well completions in the county, lease bonuses have continued to accelerate through the first half of 2017. While there are portions of Dewey that were heavily promoted during the deep gas days, in general, both the mineral and leasehold title chains are not as difficult to decipher as they are in the SCOOP or the Arkoma Basin. This is plus for landmen who can acquire leases quickly without squandering time and their land budgets on complicated title work.

There are two distinct plays being pursued in Dewey County. The first is a Pennsylvanian system play. Leading the charge is Mewbourne Oil Company with 11 pooling orders, and eight completions in a mix of both Cottage Grove and Cleveland wells. Other notable operators pursing similar targets are Arnold Oil Properties and JMA Energy Company. These companies have been active in Dewey County for a few years with little competition from private equity backed or publicly traded companies.

The reason for the increased activity in Dewey County however, is the hope that well results from the STACK Mississippian and Woodford wells will translate into similar results further to the West. In the past 12 months, there have been 11 applicants granted Pooling Orders from the Oklahoma Corporation Commission for the Mississippian and/or Woodford common sources of supply in Dewey County. For this discussion, Pooling Orders will be our metric to measure presence and activity level in Dewey County. The companies, the number of Pooling Orders issued and leases and/or assignments taken are detailed below.

It is clear from the data above that the four leading companies into the county are Tapstone, Continental, Council Oak (who purchased the Wolf Bend leases), and Carrera. The numbers deserve more analysis. Both Council Oak and Carrera have the same rich father (Encap Investments). As in the case with most private equity backed companies, once the sponsor deems that the company will achieve certain metrics with a sale, they will begin a process. It will be interesting to see if Carrera and Council Oak will be marketed together or separately.

Tapstone announced in April that the company will go public with the goal to raise $100m in the initial public offering. While Tapstone claims to own approximately 400,000 acres across the Anadarko Basin, most of its recent activity has occurred in Dewey and Woodward Counties. With an IPO on the horizon, one should expect prolonged activity in the area by Tapstone.

As always, Continental is the wild card. With a seemingly endless budget for leasing and exploration, your correspondent believes that 12 Pooling Orders and 563 leases is just the beginning and that Continental, despite its reputation for higher than average well costs, will be the development leader going forward in Dewey County.

More to follow,

Berlin

The Farmout: What You Need To Know

(This post originally appeared on www.oklahomaminerals.com on December 3,2016)

All,

In many areas now designated as the SCOOP and STACK, there are oil and gas leases that have been held-by-production for decades. It is often a boon for the current operator of the vertical wellbore and his working interest partners to have an asset so highly desired by horizontal operators. Often, the horizontal operators will not pay the asking price the vertical operators demand for their production and outright sale of their oil and gas leases, and thus, the only items on the trade blocks are the deeper, usually undeveloped formations that the horizontal operator desire to develop and exploit. There are many ways to strike a deal in the patch, but today’s article will focus on the farmout agreement.

A farmout agreement is a common agreement in oil and gas transactions where the current working interest owner (“Farmor”) agrees to convey all or a portion of his working interest in the oil and gas lease to a second party (“Farmee”) who desires to drill a well on the oil and gas lease. The primary difference between a farmout and an assignment is that the Farmee must drill and/or complete one or more wells (the “Earning Well”) in order finalize the transfer of the working interest in the oil and gas lease.

The Farmout: What You Need To Know

A potential Farmor might entertain a farmout for a number of reasons. He might not have the expertise, knowledge, or technical equipment in order to exploit the geology. He might be unsure of the geology or unwilling to take the risk. He also might not have the capital to deploy to drill the new well.

The Farmee might entertain a farmout for a number of reasons. Likely, as in the case in the SCOOP and STACK, is that a farmout might one of the only methods for the horizontal operator to obtain rights in his desired formation that is currently held by production by existing oil and gas leases. He will also have the requisite capital and technical expertise to incur the risks of drilling the Earning Well.

There are a number of key terms that must be defined in the farmout agreement. The following should be specified:

1. The commitment – Does the Farmee have to drill one well to earn the agreement or multiple wells? Or does the Farmee have to expend a certain dollar amount instead aspecified number of wells? Does the Farmee have to drill-to-earn or produce-to-earn the Earning Well?
2. The term – How long does the Farmee have to commence operations?
3. The oil and gas leases to be earned by the Farmee
4. The target formation and well location of the Earning Well
5. The Farmor’s retained interest – What formations is he reserving from the conveyance? Is he reserving an overriding royalty interest? Are there any back in after payout provisions? How are these provisions calculated?
6. The Form of Assignment of Oil and Gas Leases to be recorded after the farmout has been earned by the Farmee.

In conclusion, farmouts are one of the ways for horizontal operators to obtain working interest in held-by-production properties and farmouts differ from assignments in that there must be an action performed by the Farmee for him to earn the working interest in the oil and gas leases. There are a multitude of ways to structure a farmout agreement, however, these are the basics provisions that need to be hashed out by the Farmor and the Farmee. If there are any other topics you would like to discuss, please mention your ideas in the comment section.

More to follow,

Berlin

Canadian County, Oklahoma SITREP

Oklahoma Oil and Gas Mineral Owners,

Because of its premier position in the heart of the STACK, leasing and transaction activity has not slowed in Canadian County, Oklahoma in 2016 despite the lower oil prices. To date in 2016, there have been 1014 oil and gas leases filed of record in El Reno by numerous operators and brokers. Because bonuses have remained competitive, the most important question that you should ask before leasing is how likely the lessee is to drill your lease during the primary term. The path to generational wealth is not periodic lease bonus payments, but the passive cash flows generated by regular royalty checks. The lessee should be a stable company focused in Oklahoma and not a fly-by-night lease flipper.

That being said, there have been only 8 companies this year who have been granted Pooling Orders in Canadian County by the Oklahoma Corporation Commission. For this discussion, Pooling Orders will be our metric to measure presence and activity level in Canadian County. The Companies and the number of Pooling Orders issued are detailed on the chart below.

Company	Number of Pooling Orders
Chaparral Energy, LLC	2
Cimarex Energy Co.	5
Citizen Energy II, LLC	6
Devon Energy Production Company	3
Felix Energy, LLC	5
Newfield Exploration Mid-Continent, Inc.	14
Payrock Energy, LLC	14
SCOOP Energy Company, LLC	8

The chart deserves a bit more analysis. Chaparral Energy, LLC declared bankruptcy which we have previously written about. SCOOP Energy Company, LLC is affiliated with American Energy Partners. As it was announced here in the Wall Street Journal, that all non-spun off entities will shut down. As SCOOP Energy Company has not been spun off, it is expected to shut down this summer. As an Oklahoma Oil and Gas Mineral Owner, I would not expect Chaparral or SCOOP to drill any wells in the foreseeable future.

Felix Energy was purchased by Devon Energy so Felix can also be struck from the list. Some in the industry say that Devon got out a bit over their skis with the purchase price and it might affect their ability to fully develop the acreage. Cimarex, the plodding tortoise of the group, moves extremely slowly. Their insistence on risk mitigation severely limits the amounts of exploratory drilling they are willing to conduct. It was well detailed in the 2016 company guidance presentation that they will focus on in-fill drilling in their East Cana field.

Newfield Exploration announced that it is closing its Tulsa, Oklahoma office this summer. With its staff mired in the morass of the Houston metro-plex, the company will be less competitive in the Mid-Continent region and will continually find excuses in the future to commit capital to other projects.

With those dominoes down, it appears that Payrock Energy, LLC and Citizen Energy II, LLC will be the development leaders going forward in Canadian County in 2016. Both appear to be accelerating their drilling to take advantage of the publicly traded companies hesitation in committing drilling dollars and other finite resources to the development of Canadian County, Oklahoma.

It's worth it as an Oklahoma Oil and Gas Mineral Rights owner to consider your lessee's plans for development before executing your oil and gas lease.

More to follow,

Berlin