New acreage for our production
Competition for the most desired areas
The requirements for successful wells and production of oil and gas is to acquire the rights for a certain area. Only the person who owns the rights may develop an area. In this respect, the acquisition of land represents one of the key success factors in oil and gas developments.
However, unlike in most other countries, rights are not granted by the state through a licensing system. Instead, the mineral resources are in private ownership.
We therefore enter into agreements with the owners of the rights (“Mineral Owners”) which allow us to extract their mineral resources (so-called “Lease Agreement”). In return, they receive a one-off payment and an additional share of the revenue from the wells (“royalty”).
The more coveted an area is, the higher payments the mineral owners can demand. As a rule, these contracts initially run for 3-4 years with an extension option. During this period, one or more wells must be drilled, otherwise the right expires. Once an area has been produced, the right to produce remains virtually indefinitely with the company that acquired the right.
Focus on known fields with low risk
There are various possibilities to acquire acreage. Often private individuals or companies offer entire packages of rights. We acquired such a package at the end of 2016 with our subsidiary Salt Creek. As a result, we have acquired minority interests in 60 producing wells and 90 potential wells. This way you can quickly build up a larger position.
Much more complex is the possibility of acquiring individual rights and combining them into a package over time. We have chosen this approach for our subsidiary Bright Rock, which operates in Utah and has purchased approximately 2,000 acres from dozens of mineral owners from mid-2018 to the end of 2019.
Together with our subsidiaries in the US, we have specialized in developing fields that are already well known. To date, around 20,000 wells have been drilled in the Wattenberg field in Colorado, several thousand of which are producing. We are specifically looking for land that is located in already developed areas. The risk of drilling errors is much lower there than in areas where little or no drilling has been done in the past.
In fact, since 2012, we have drilled well over 100 wells ourselves or had a minority stake in them.
Experience in land acquisition and drilling
While our first wells were vertical wells, since 2015 we have exclusively drilled and financed horizontal wells with lengths of 1 to 2.5 miles. All our wells are producing oil and gas and were successful in this respect.
Another special feature of the US legal system is that all companies producing oil and gas are required to publish production data. The production data is published for each individual well and for each month by the department responsible for the respective state.
This data also enables our companies to evaluate the areas or wells offered to them. Due to the very dense drilling grid in the developed fields, it is possible to make a fairly reliable estimate of what production can be expected on the available area by drilling wells that produce nearby.
Of course, the production data is not only important for the acquisition decision but also provides a solid basis for the investment decision of a drilling program. Furthermore, the many years of experience of our colleagues on site also enable a detailed cost estimate of the drilling costs as well as the production costs.
