Expiring Leases -- Oasis As First Example -- Bakken, North Dakota, USA

The scuttlebutt is that expiring leases could appreciate 10-fold in the Bakken at the end of this year.

Now that annual reports are out, one might be able to find out to what extent one's favorite company is at risk with regard to expiring leases.

On page 38 of the printed copy of the Oasis annual report, and on page 44 of the 130-page electronic copy of the Oasis annual report, this:

Our acreage must be drilled before lease expiration, generally within three to five years, in order to hold the acreage by production. In the highly competitive market for acreage, failure to drill sufficient wells in order to hold acreage will result in a substantial lease renewal cost, or if renewal is not feasible, loss of our lease and prospective drilling opportunities.

Unless production is established within the spacing units covering the undeveloped acres on which some of the locations are identified, the leases for such acreage will expire (numbers are rounded).

• As of December 31, 2011: 54,000 net acres will expire
• As of December 31, 2012: 24,000 net acres will expire
• As of December 31, 2013: 42,000 net acres will expire

Oasis notes that the cost to renew such leases may increase significantly, and we may not be able to renew such leases on commercially reasonable terms or at all. In addition, on certain portions of our acreage, third-party leases become immediately effective if our leases expire ("top leases"). 

How much did expiring leases cost Oasis in past years? Non-cash impairment charges, as follows:

• 2010: $12 million
• 2009: $5 million
• 2008: $1.6 million

Back-of-the-envelope calculations: 54,000 / 1280-acre spacing --> 42 wells. In addition, Oasis might have other wells that they might want to get to first. Regardless, they have 7 rigs and that works out to 6 wells for each rig this year. There is some discussion regarding this issue, but there is some suggestion that a lease will be held if the pad is at least started; others will take issue with this.

Request for Assistance

I don't have time to check every annual report of Bakken companies, so maybe others could help. If you have a favorite Bakken company, and have a copy of their annual report (electronic copies are available at this site; see top of sidebar at the right), see if you can find the numbers and send them to me via comments or e-mail. Please include page of the report, so I can verify or add clarifying statements.

Compare with CLR's expiring leases.
Compare with DNR's expiring leases.