Saturday, May 1, 2021

The Man Who Bought 60,000 Oil And Gas Wells -- May 1, 2021


May 2, 2021: the reader continues with this:

Regarding the Bakken/Permian DSU differences ... both were/are one-square-mile 'squares' with the North Dakota regulators prudently expanding to two-square-mil (1,260 square acres) spacing units in the early years.

That single action - going from 640- to 1,280-acre DSUs  - was arguably one of the most crucial acts in boosting Bakken development.

The Permian still employs 640 square acre units - 'leases' being the common description - throughout the state ... as does Oklahoma, Louisiana, Colorado, and virtually every other state (excepting California) west of the Mississippi.

One interesting fact on this topic is the 'mineral rights' / Land Grants that the US government gave to prospective railroad builders in the late 1800s in efforts to encourage them to build new rail tracks. 
These legacy  mineral rights can be seen with the 'checkerboard' holdings in Texas and Colorado, especially, that company investor presentations usually show. [I believe I saw them at one time in presentations relating to North Dakota, also.]

Just as the little-recognized stripper industry plays a significant role in the oil/gas production world, the entire 'land/landmen' arena is almost completely overlooked, while being an extremely influential component of the industry.

May 2, 2021:  the reader who tipped me off to DGO, sent a follow-up:

That DGO outfit is certainly positioning itself as a premiere stripper, but that barely scratches the surface of what is taking place.

Eastern states, unlike the rest of the country, do not have pre-determined, geometric shaped drilling units. In fact, no DSUs exist at all. As a consequence, once a 640 acre holding is 'cobbled together' with willing mineral rights holders, an operator may get state approval to drill.

The shapes of these units (and the total size of contiguous acreage) is all over the place.

One consequence is that scattered, fragmented pads/holdings have little value to the Big Boys.
Enter DGO who was practically given over a dozen producing unconventional wells, engineering plans for maybe 30 more, and about half dozen developed pads which cost around $1 million each to prepare in Pennsylvania. 
The real value, it seems, with this company is that it offers a great outlet for the Big Boys to continue buying/merging without having to bother with the 'crumbs.' 
This is why EQT bought out CVX's Pennsylvania holdings for $735 million when CVX originally paid around $6-$8 billion for the stuff. EQT turned over the fragmented, unwanted producing pads/wells to DGO for peanuts. 
XTO - and others - are following CVX in leaving Appalachia.

Bottom line, consolidation continues apace. 
One consequence is the enormous benefit that some 'Little Guys' may receive. [Comment: again I am posting this to help understand how different plays, like Appalachia, are developed, compared to the Bakken. I assume the Permian is similar to the Bakken, but the Permian being a much older play, probably has some unique drilling unit issues.

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here

Original Post

Brought to my attention by a reader. Quite a story. Link to BBC.

So in 2001, aged 32, Rusty bought an old gas well back in West Virginia for $250,000 (£200,000). He raised the money by remortgaging his home.

"It was a small old well, it had been in production for years, but it was like gold to me," he says. "I spent the next four years still also working in the bank, but any spare time I had I'd fly up to West Virginia to work alongside the one well tender that I had back then."

Fast-forward to today, and Rusty's company, DGO, now owns more than 60,000 gas and oil wells across West Virginia, Pennsylvania, Ohio, Kentucky, Virginia and Tennessee, a region called the Appalachia. Employing 925 people it has annual revenues of more than $500m. Some 90% of its operation is natural gas, with 10% oil.

The company's business model is a very specific one - it doesn't do any drilling to find new oil and gas reserves. Instead it buys up old oil and gas wells that bigger producers no longer want, because the initial large flow levels have fallen to low volumes.

He might feel right at home in North Dakota with the dreaded "Bakken decline."


  1. I've come across that company before. They are sort of interesting.

    All that said, surprised how promotional that BBC article was. Mostly just playing the company's preferred story. There are some down sides to them. Highly leveraged. Also, a US company opening on foreign markets is pretty sketchy penny stock behavior.

    1. This is not an investment site. I have no interest in this company as an investment. I found it interesting from a completely different point of view. Sorry. Not sorry if I implied otherwise; others inferred otherwise.

      Having said that, however, you do bring up a great point -- a US company opening on foreign markets. I've often said that Americans are too American-centric.

      I found this story fascinating, as did the reader who sent it to me, with regard to the "stripper well" industry in the US. It would truly be a waste to leave all that oil behind.

      One wonders if this entrepreneurial spirit could succeed in the EU, China, Russia, or Lichtenstein.