Lease Bids Update: February 2, 2010

Results of the February 2, 2010, North Dakota state oil and gas lease sale: a total of $47.3 million in bonuses with bids averaging $1,177 an acre.

Highest bid: $7,300/acre, Irish Oil & Gas, Inc. Until this story, I had never heard of Irish O&G. This bid was for three 40-acre tracts in Mountrail County, section 13, T155N-R92W. Interestingly, other acres in Mountrail averaged $1,617/acre.

Second  highest bid: Empire Oil (Williston): $6,600/acre for 100 acres in Mountrail County, section 5, T156N-R91W.

County with most acres leased: Burke County, 11,977 acres. Also surprising -- high bids. Averaged nearly $600/acre.

McKenzie County: 8,662 acres; average of $2,158/acre. Total bonuses paid: $18.7 million.

Mountrail County: 4,146 acres; average of $1,617/acre, which included the outlandish Irish O&G bid. Total bonuses paid: $6.7 million.

Williams County: 4,673 acres; average of $1,935/acre. Total bonuses paid: $9 million.

Irish O&G: a) highest bid, $7,300/acre, 3 40-acre tracts, section 13, 155-92; b) second highest bid, $6,700/acre, 40 acres in section 11, 155-92;  c) $6,000/acre, 80 acres, section 9, 155-91; and, d) $5,900/acre, 40 acres, section 20, 153-95. Note: the tract in section 20, 153-95, was the highest bid paid for acreage in McKenzie County. The other three Irish O & G tracts were in Mountrail County.

Other bidders: Sundance O & G was highest bidder in Burke County ($1,060/acre); Rick Frazier paid $950/acre for two tracts. Intervention Energy LLC (Minot) was high bidder in Williams County, paying $4,500/acre for 2.73 acres, section 6, 156-103.

The full results of this land lease can be found by clicking here. When you get there, use the drop down menu to select the county you are interested in, and then click on the "submit" button.

Back of the napkin calculation.

Let's say the estimated ultimate recovery (EUR) for a 1280-acre spaced well in Williams County is 1,000,000 barrels. That means each acre "produced" (1,000,000/1280) = 781 barrels (over the life of the well).  At $60/barrel, that works out to about $47,000 (over the life of the well).  (Remember, the best wells in North Dakota are estimated to have EURs of 700,000 barrels with current technology.)

If the well produced an average of 15,000 barrels/month the first year, the well would produce 180,000 barrels the first year. Again, each acre would "produce"  (180,000/1,280) = 140 barrels. At $60/barrel, that works out to about $8,500.

At $4,500/acre, the buyer would have his investment back at six months, and from there, all profit (disregarding ever-increasing taxes).

Note: the napkin calculation was done by someone with irrational exuberance, and there is very likelihood that all this would pan out. Smile. But them's the numbers.

Now, back to that Irish Oil and Gas story (elsewhere I posted this):  

Special Circumstances: the Alger Excitement
18647 (C): Fidelity, Anderson 11-13H 
17392 (C): BEXP, Anderson 1-11H, is in section 11.
Comment: the reason these two wells are so important -- an entity called the Irish Oil and Gas Company has just paid the equivalent of $4.7 million for 640 acres, by paying $7300/acre for 120 acres in sections 11, 12, and 13, T155N-92W, Alger Field. The two Anderson wells are located in the same sections that Irish bought leases in. These two wells are still on the confidential list. This is a better-than-average field but not THAT remarkable. What might be going on? For those who do not follow these things, acres in the township north of this location were going for as little as $600/acre (which "in the old days" was a nice price). So, what's going on in the Alger?

Some folks coming to my web site have been searching for Rick Frazier. You can find more discussion here.