Bakken Acreage Value -- May 25, 2024

Locator: 47169B.

A decade ago -- maybe longer -- when I first started following the Bakken -- I tracked the value of the mineral acres based on prices paid for mineral acres, data from various sources. Then I compared that to what I thought the minerals were worth based on a number of facts and personal assumptions. I've always maintained that prices paid for Bakken mineral rights are far below what they are truly worth. But that's all in the eyes of the beholder. Just wild-ass-guesses (WAGs). 

So, this I found particularly interesting. A reader occasionally sends me updates regarding offers he gets for his/her mineral rights. 

This was the most recent. This data is the most recent I received. This is all from the same reader.

The reader has mineral rights in several locations in the Bakken.

In the spreadsheet below (all of the data is hidden except for three columns). 

Lines 3 and 8 represent the very same property, the same section in both cases. 

Note, in line 3, the landman offered $6,480 / acre for the mineral rights back in October, 2022. Despite this acreage having produced since the boom, the landman most recently offered $13,157.64 for the same parcel, May, 2024.

On October 24, 2022, WTI was going for $86.12.

On May 20, 2024, WTI was going for $81.39.

Link here.

So, the price of WTI hasn't changed much since the original offer (has actually dropped a bit) and yet the offer (for a somewhat depleted parcel) is now worth more than twice what it was since the original offer. 

No further comment.

Oh, one last comment. The minerals acres are in Tier 1 Bakken but not the best Bakken.

Just Checking In -- $$$ / BOEPD -- May 20, 2024

Locator: 47143B.

Pricing the Permian and Eagle Ford.

From November 4, 2021.

• CLR / Permian: $59,090 / boepd.

From January 31, 2022.

• NOG / Permian: $52,000 / boepd
• $79,000 / acre
  

Today, APA, link here:

• APA / Eagle Ford: $700 million / 13,000 boepd = $53,846 / boepd

Price Per Acre, Price Per Flowing Barrel -- February 5, 2024

Locator: 46743B.

For the archives.

Simply a reminder, nothing else. These prices were at the high end. I've long lost the bubble but in the Bakken around $25,000 / flowing boepd?

See tag for other posts.

Link here. Acquisition, 2022, Delaware Basin:

Link here. Acquisition, 2022, Midland Basin:

 

70-Acre Parcel In Mountrail County "Goes For" $35,000 Per Acre -- July 11, 2022

See these posts for maps:

• the 68.53-acre parcel:
• the Sinclair / Oasis wells to the north
• the CLR wells to the north
• the nineteen parcels; 
• the BLM National NEPA Register;
  

Chord Energy (Whiting + Oasis) is tracked here.

Headline, July 6, 2022: Whiting tops the bidders in Montana / Dakotas oil and gas lease sale. Link here.

Note: these are not the quarterly North Dakota state lease sales. These are federal BLM sales.

From the linked article:

• Whiting: high bidder in the BLM's Montana / Dakotas oil and gas lease sale
• total BLM sale:
• 19 parcels
• $5.354 million
• Whiting
• $2.346 million
• a 68.53 acre parcel in Mountrail County
• back-of-the-envelope: $2.436 million/ 68.53 acres = $35,550 / acre.
• rivals anything we've seen in the Permian
• first BLM sale to implement the increased royalty rate of 18.75 percent
• prior: 12.5%
• new rate took effect on / about July 1, 2022.
• more on these lease sales at: https://eplanning.blm.gov/eplanning-ui/project/2015346/510.

Bakken's RimRock Oil & Gas Up For Sale -- Again? Reuters -- April 11, 2022

Link here.

Private equity firm Warburg Pincus has placed its portfolio company RimRock Oil & Gas up for sale, three people familiar with the matter said, aiming to take advantage of the upswing in commodity prices to offload the Bakken gas producer.

It is Warburg's second attempt to sell the gas producer in just over a year, the sources noted. A 2021 auction process failed to secure a buyer at the valuation which Warburg sought.

While current commodity price volatility makes it more challenging to appraise energy assets, RimRock is now expected to achieve a valuation in the high hundreds of millions of dollars, up from the target price last year of upwards of $500 million, the sources added.

Warburg has retained an investment bank for the sale of RimRock, which owns assets spread over 29,500 net acres in the Bakken shale play of North Dakota.

On a net acre valuation seeking about $17,000 / acre. 

Value Of The Bakken -- July 28, 2019

Disclaimer: I am inappropriately exuberant about the Bakken.

Disclaimer: I am doing this while watching an old movie on the Civil War on TCM.

Disclaimer: I often make simple arithmetic errors.

Disclaimer: there will be factual and typographical errors on this page.

Disclaimer: the blogger app has embedded cookies. Whatever that means.

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

Finally, the note. 

This seems pretty straightforward, though I do make simple arithmetic errors and don't completely understand royalties and mineral rights.

But let's see where this leads.

A reader sent me a note saying he/she had been offered $5,333.33 for his/her interest in mineral acres in the Bakken.

The facts (a reader writes): 

• the reader has 16.67% base royalty in 1.0000 net mineral acre in the NW quadrant of section 16 in T155N-R100W
• the reader is being offered $5,333.33 for that interest
• this particular mineral unit is located in the "best Bakken"; having said that, there are even better areas in the Bakken)

Let's do the math.

First step:

• the reader has a typical base royalty in this mineral acre: 16.67% or one-sixth (in fact, one-sixth is pretty good; in the "old days," mineral owners typically received one-eighth)
• the buyer is offering $5,333.33 for that one-sixth interest in one net mineral acre
• therefore, one net mineral acre would be valued at $32,000 (6 x $5,333.33) 
• to repeat: one mineral acre in the best part of the Bakken is being valued at $32,000 

Second step:

• one net mineral acre: $32,000
• the standard drilling unit in the Bakken is 1280 acres
• a standard 1280-acre drilling unit is valued at $40 million (rounded) ($32,000 x 1280 acres) 

Third step: 

• Bakken light, sweet is currently trading for about $40/bbl
• the number of bbls to yield $40 million = 1 million bbls
• current EUR in the best Bakken: 1.5 million bbls / middle Bakken well  

Bottom line:

• I will let readers sort this one out.

Salt Creek Acquisition -- NOG To Acquire 1,319 Net Acres In The Core Bakken; Nearly $40K/Acre -- April 26, 2018

Updates

Later, 4:12 p.m. CDT: think about this. NOG's market cap is $200 million. It just spent $50 million on 1,319 acres in the Bakken. 

Later, 3:49 p.m. CDT: I was looking for this data earlier. Couldn't find it easily. Forgot I had a "tag" for it. The "tag": boe/acre. 

Original Post

NOG, press release:

• will acquire 1,319 net acres in the core Bakken
• acquired from Salt Creek Oil and Gas, LLC; a subsidiary of Deutsche Rohstoff AG
• 86 gross wells; 6.5 net wells (current operators: Hess, Whiting, COP, Statoil)
• McKenzie County, southeast of Williston; right along the south side of the river
• 100% held by production
• acquiring 8.2 net future drilling locations; EURs of 1 million bbls
• acquisition to yield almost $20 million of cash from operations for 2018 (this year)
• $40 million + 6 million shrs NOG ($1.60/share)
• $50 million / 1,319 acres = $38,000 / acre
• the acreage is in some of the best acreage in the Bakken -- probably better than the Sanish, the Parshall, and as good as / better than the Grail (see graphic below) 
• what do investors think of this news? in early morning trading, just after the announcement, NOG shares are up 2.5%
• some idle calculations (mine, not from the NOG press release)
• 1,319 acres = ~ 2 sections
• 2 sections = 1280 acres
• minimum: 12 wells on 1280-acre spacing
• 12 wells x 1 million EURs = 12 million bbls
• from an old post, 2014: 1,875 boe / acre - 2014; EURs of 500,00 bbls
• 1,875 boe x 1280 acres = 2.4 million bbls
• 12 million bbls crude oil / 1280 acres = 9,375 bbls oil / acre in the core Bakken 
• 12 million bbls crude oil x $40/bbl = $480 million  

The graphic: note, the NOG press release did not have the text that I've put on this graphic. I could be way off, but I think this is fairly accurate:

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Other News Affecting The Bakken

Active rigs:

$68.63↑	4/26/2018	04/26/2017	04/26/2016	04/26/2015	04/26/2014
Active Rigs	63	48	26	84	182

RBN Energy: costly logistical headaches for Permian crude E&Ps, part 4. I do not know, but I have not heard much about crude-by-rail yet in the Permian. While driving through a very, very small part of the Permian recently, I saw no CBR.

Large-scale and well-funded producers in the Permian have built dedicated gathering systems and signed up for pipeline-takeaway options to keep their barrels moving to markets at the Gulf Coast and Cushing.

For the most part, smaller producers don’t have the same options, for a variety of reasons. More and more, barrels from outside the core areas of the Permian are competing for the last bits of pipeline space and producers are being forced to rely more heavily on Permian trucking companies to help keep their crude flowing. Truckers are being asked to make less desirable, less economical and longer hauls, and are passing those costs back to the producer. With pipeline takeaway capacity maxed out, trucking capacity is being pushed to the limit too, with several potential upstream impacts. Today, we look at trucking options for smaller producers in second-tier production areas, the impact of boom-bust cycles on trucking companies and what tight trucking capacity means for the basin as a whole.

Consider The Source -- May 11, 2017

Rystad via Twitter:

Meanwhile, elsewhere, and consider the source --

Goldman Sachs now bullish on oil -- at least for the next 6 to 12 months -- oilprice.com.

He pointed to the futures market, where the curve could be headed into backwardation – a situation in which near-term oil futures trade at a premium to contracts further out. That structure points to concerns about a deficit in the short run, which is why front month contracts would trade at a higher price than deliveries six or twelve months away.

A deficit in the short term? What universe is he living in?

Putting some of the jargon aside, Goldman is simply arguing that the oil market will be much tighter this year than most people seem to think. The investment bank forecasts returns on commodity prices on the order of 13.3 percent over the next three months and 12.2 percent over the next 12 months.

It's been my impression that trying to decipher Goldman Sachs reasoning is akin to sorting out a vision from the Delphi oracle.

Meanwhile, the forecast for non-cartel production growth quadrupled in size since November, 2016. Read that again:
the forecast for non-cartel production growth quadrupled in size since November, 2016
From Financial Times.

Higher than expected production from the US and other countries outside the cartel is offsetting curbs from some of the world’s biggest producers, Opec said, keeping global oil inventories stubbornly high and pressuring prices. 

Opec’s latest monthly forecasts revised up production growth from outside the group by 58 per cent to almost 1m barrels in 2017, and said the world will require only 31.9m barrels a day of its crude on average this year.

Again, by OPEC's reckoning: non-OPEC production (e.g., Bakken, Eagle Ford, Permian) will / has increased production by almost 60 percent -- increased production by another 1 million bopd -- pretty much off-setting any OPEC production cuts.

And more:

That means demand for Opec’s oil is only 200,000 b/d higher than current levels of output, according to the data from consultants and energy analysts submitted to the group, despite making output cuts that are at least six times as large. 

Although Opec’s figures suggest stockpiles will still drop in the second half of this year, it is dependent on output not rising further. The total production figure includes Libya and Nigeria, however, who are exempt from output cuts and whose production is set to recover in coming months after disruptions. 

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Pricing Mineral Acres In The Eagle Ford

One can get Bakken acreage for as little as $1/acre. What's the Eagle Ford doing? From Oil & Gas Journal:

• 111,000 net acres for $265 million 
• $2,400 / acre
• buyer: WildHorse Resource Development Corp
• seller: Anadarko Petroleum Company

And, oh, by the way, the Bakken is 93% oily; the Eagle Ford is not.

Resource Energy Adds More Bakken Acreage For Less Than $800 / Acre -- April 29, 2017

I always wondered what happened to Magnum Hunter. This article has the answer, from Oil and Gas Investor:

Resource Energy Can-Am LLC continues to build up its position in the Bakken Shale with its third acquisition in Divide County, N.D., the Denver-based company said April 26.

For $34.7 million cash, Resource Energy will acquire interests in producing wells and mineral acreage from Blue Ridge Mountain Inc., formerly known as Magnum Hunter Resources. The deal includes average production of more than 1,500 barrels of oil equivalent per day (boe/d) and 3 MMboe of reserves.

Data points:

• 167 wells
• 45,000 net mineral acres
• $35 million 
• buyer: Resource Energy Can-Am LLC
• seller: Blue Ridge Mountain Inc, formerly Magnum Hunter Resources
• mostly in Divide County, it appears
• back-of-the-envelope: less than $800 / acre

More from the article, again, which sheds light on a lot of players during the Bakken boom:

Since Resource Energy’s formation in 2015 with backing from Apollo Global Management LLC , the company has acquired Williston Basin assets from E&Ps hit by financial troubles, including chapter 11 bankruptcy.  Blue Ridge Mountain itself emerged from bankruptcy protection in May 2016.

In November, Resource Energy was the successful stalking horse bidder on Samson Resources Co.’s Bakken assets in North Dakota and Montana in a $75 million deal. A year earlier, Resource Energy purchased bankrupt American Eagle Energy Corp.’s Divide County assets for an undisclosed amount.

Pro forma for its recent acquisition, the company’s footprint in the Williston will include proven reserves of about 32 MMboe and interests in 385 wells.

The deal will also mark Blue Ridge Mountain’s full exit from the Bakken as the company plans to now focus on its core acreage in Appalachia, said John Reinhart, Blue Ridge Mountain’s president and CEO.

Obviously there is no comparison between the Permian and Divide County in the Bakken, but considering some are paying upwards of $40,000/acre in the Permian, Bakken acreage for less than $800/acre certainly seems incredible.

To extent possible, I track Bakken operators here. 

For The Archives -- EOG, The Permian, Break-Even Prices -- April 23, 2017

I've been saying this for quite some time, most recently March 14, 2017: the prices that folks are paying for mineral rights in the Permian don't make sense. Everybody more knowledgeable than I am and with a whole lot of experience tell me I'm wrong. Today I stumbled across this article while following up another set of links. I had not seen this article before. It's from Art Berman (consider the source) back on December 18, 2015.

Right or wrong, the fact that the price of oil is trending back toward $50 has to be a bit concerning for companies who bought into the Permian during the $40,000 / acre buying frenzy and folks thought oil was trending back toward $70.

For the archives, from the Art Berman article linked above:

Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.

Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.

To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the USA is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.

The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.

It should be noted that his lede begins with "$30-oil" where it was some years ago but oil is now back up to $50, so "stuff has changed."

This link came when following the first link and then the second link below (previously posted):

• EOG's monster well in the Permian -- Filloon, April 23, 2017
• EOG's monster well in the Permian -- Motley Fool, April 12, 2017

Why I Love To Blog -- Reason #25 -- March 7, 2017

In an earlier post that I updated about 5:30 p.m. earlier today I wrote, putting in bold red now which will relate to a SeekingAlpha article linked below:

Down: both the Dow and WTI closed down a bit by the end of the day. The Dow down 30 points (inconsequential); WTI down 40 cents, again, below $53 -- which is really bad news for Saudi Arabia: a) the actual price; b) the "stubborness" of the price to move; and, c) the trend (down).

The Permian: on that note, those companies paying $40,000/mineral acre in the Permian were also betting on a better price / better trend with regard to WTI. I'm not so sure folks are going to look back on some of those deals and wonder "what in the world were they thinking?" Even at $100 oil, one wonders if one can make the math work at $40,000/acre; and, at $50 -- well, I've said all I should say.

After writing that, I closed the computer, picked up our oldest granddaughter and drove her to water polo practice. At 7:10 p.m. I got back on the computer, only to find this over at SeekingAlpha:

• ConocoPhillips CEO Ryan Lance says the company is planning for oil in the low $50s for the next couple of years, and says it can "not only survive but thrive in those kind of prices" since the company now boasts some of the lowest breakeven costs in the business
• "We're thinking lower for longer and we're thinking with a lot of volatility, so we've got to be prepared," Lance tells the CERAWeek energy conference. "We may see $70, $80 in the next couple years [but] if we do, we're going to see $40 on the back end of it."
• Lance says COP's standard on new projects is that hey must be able to generate a 10% return at $50/bbl for Brent crude
• the CEO also is surprised that companies are rushing so quickly to increase production out of the red-hot Permian Basin when he says much about the geology of the play still needs to be understood, making mistakes and less productive wells likely

Amazing. 

A couple of hours ago I thought about the craziness of $40,000/Permian acre and then this from the CEO over at ConocoPhillips / SeekingAlpha. 

I know readers disagree with me but a few days ago (or was it yesterday) that I even questioned Exxon's "doubling down" in the Permian.

But for the Saudis: "ConocoPhillips CEO Ryan Lance says the company is planning for oil in the low $50s for the next couple of years." Really, really, really bad news.

More On The RSP Permian Deal In The Delaware Basin -- October 15, 2016

Remember that story about RSP Permian paying $60,000/Permian acre? Bloomberg over at Rigzone weighs in. Data points:

• a record deal
• in the biggest oil field in the US
• Bloomberg calculates $45,000/ace -- a price never seen before in the western section of the Permian known as the Delaware Basin
• acquisition costs in the Delaware Basin are creeping close to the more prolific Midland Basin 100 miles to the east

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Freeport-McMoRan To Sell Onshore California Oil And Gas Assets

Data points:

• will sell assets to Sentinel Peak Resources California
• $742 million; hardly makes a dent in world's largest listed copper miner's debt (almost $20 billion)
• this quote from the article: "high-cost, heavily-regulated California market"

Delaware Basin Still Selling For $60,000 / Acre -- October 14, 2016

Active rigs:

	10/14/2016	10/14/2015	10/14/2014	10/14/2013	10/14/2012
Active Rigs	31	66	190	183	192

RBN Energy: Supplying Mexico's growing natural gas demand. This is quite a story. One graphic tells the complete story why Mexico needs more US natural gas.

RSP Permian acquires Silver Hill for $2.5 billion. I've posted RSP Permian on the blog for the past several days. Interesting how things turn out. Data points:

• RSP Permian to buy two privately held entities
• together, they control 41,000 net acres in the Delaware Basin of the Permian Basin
• $2.5 billion
• sellers: Silver Hill Energy Partners and Silver Hill E&P II (controlled by equity firms Kayne Anderson Capital Advisors and Ridgemont Equity Partners

$61,100 / net acre. In line with other recent deals.

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The Market

On a pretty good day for the market, TSLA drops well below $200/share. 

Early morning trading: Dow 30 up 140 points. NYSE:

• new highs: 47 -- Encana
• new lows:  20

US retail sales rose in September by most in three months.

US business inventories increase as retailers boost stocks. It looks like the Hanjin bankruptcy was managed well. 

JP Morgan beats forecasts ... by a lot.

SoftBank and Saudi Arabia team up for $100 billion tech fund. How big is the new SoftBank investment fund backed by Saudi Arabia's PIF? From Ahemd Al Omran, in a twitter:

To put this into context, companies backed by venture capital raised a total of $130 billion last year globally. A $100 billion fund would be able to buy all of Salesforce.com, LinkedIn, and Twitter, GoPro, and Fitbit and still have a few billion left over. SoftBank's current market capitzlization is $75 billion. 

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A Note For The Granddaughters

The other day our 13-year-old granddaughter -- who says history is her favorite subject -- said she would like a "book on world history."

That was a hard one. Did she want a book that was fun to read, good literature, or did she want a textbook with a lot of "dry" history? My wife and I checked out Barnes and Noble where they had not less than four double-sided back cases in the history section, but no single book on "world history." Except for textbooks, I was not sure one would exist.

I then went to google and to Amazon.com and found what is perhaps the classic, or the "Bible" in this genre: The History of the World by J.M. Roberts, older editions. It has since been revised by Odd Arne Westad, c. 2013, published by the Oxford University Press, Sixth Edition.

It was delivered two days ago and I am immensely impressed. I will give it to our granddaughter this weekend with a few notes from me regarding the book. At 1,187 pages, it is not meant to be read from cover-to-cover over the weekend. At the end of the day, it is a reference book.

Its index is 71 pages long, but there is no bibliography, no end notes, not footnotes, no nothing. Just 1,187 pages of narrative.

There are very, very few dates in this book (relative to the size of the book). It is a narrative, in the sense that one's uncle is telling a niece the history of the world, attempting to explain why things happened when they did and in the context of what was going on around the world at the same time.

There are a lot of black and white, relatively small, maps but adequate and serve their purpose. There is no timeline. We will buy a separate timeline that she can post on her wall.

The book is divided into eight "books" and again, no dates are given (but obviously the book is laid out chronologically).

Some reviewers suggested that the volume is Euro-centric -- of course, it is. Reading the book, one quickly understands why. I was curious to find an example. For that, I turned to Book Four: The Age of Diverging Traditions, and to Chapter 8 in that book: Worlds Apart.

This book [Book Four in this huge tome] runs from the 2nd century to the 14th century AD. The early chapters begin well south and east of Europe, Eurasia (modern day Turkey), India, China, before moving on to Europe, which we finally get to in Chapter 4 (of Book Four): The New Middle East and The Making of Europe. Then, in three later chapters, India, Imperial China, and Japan.

Chapter 8 in Book Four: Worlds Apart, in just a few pages, covers the history of Africa and the Americas during this same time period. For the first time in my life, I finally have a rudimentary picture of what was going on in Africa during the first 1500 years following the birth of Christ.

Obviously in just a few pages, the history is not comprehensive, but it's like an unadorned Christmas tree. From that short chapter, I have the general idea of Africa at that time. Now, if I want, I can buy the ornaments -- additional books on the history of Africa during this time period.

I've provided an overview of the book for our granddaughter. Whether she uses it or not, my hunch is she won't use it at first, but maybe later on. As noted, we will give her the book this weekend, but I will probably order a second copy for my own bookshelves.

If These Numbers Can Be Believed .... Pricing The Permian -- September 16, 2016

If the Bakken was not landlocked (the keystone trifecta: Keystone XL, Sandpiper, and Dakota Access Pipeline) we might see some of these same stories.

From Yahoo!Finance, which probably re-printed the story or parts of the story from Bloomberg and/or Investor's Business Daily. Some data points:

• Silver Hill Energy Partners: started in 2011; has raised $725 million; controls 42,000 net acres on the western shelf of the Permian (Delaware Basin); OXY, MRO, and Noble energy all supposedly interested; could go for $2 billion; $50,000 / net acre
• Noble Energy expanded into the Delaware last year; $3.9 billion takeover of Rosetta Resources; 46,000 net acres; $85,000 / net acre
• OXY: one of the largest landholders in the Permian with 5.4 million gross acres

It has previously been reported that acreage in the Permian is still going for $40,000 / mineral acre. 

Could The Oil Price Shock Come Sooner Than Later? USA Today Opines -- March 27, 2016

From USA Today:

The depletion of old oil wells is expected to surpass new sources of supply in 2016, as the ongoing oil price slump puts a long list of oil projects on the shelf.

Bloomberg flagged new data from the Norwegian consultancy firm Rystad Energy, which predicts that legacy production will tip the supply balance into the negative in 2016 for the first time in years.

The production from an average conventional oil field typically ramps up in the early years, plateaus and then enters a period of decline. Depletion rates vary wildly from field to field, but a rule of thumb for conventional oil fields – which make up the bulk of total global supply – is that they decline something like 6 percent per year on average.

Again, those depletion rates can differ depending on location, levels of investment, etc., but one thing that is clear is that the oil industry needs to bring new oil fields online every year in order to merely keep production flat.

I wonder if they were referencing the Rystad note I posted earlier? 

Remember these data points:

• for years, Saudi Arabia set their budget based on $100 oil
• word on the street is that Saudi Arabia never expected oil to drop below $60
• Saudi Arabia set their 2016 budget based on an average of $60 oil for 2016
• one must assume they generally establish their budget three to six months prior to the budget year
• I doubt Saudi oil has averaged greater than $40 the first three months of 2016

To get to an average of $60 oil for the entire 2016 year, I've already done the math.

I still don't see how we get there ($60 oil average for the entire 2016 calendar year) from here.

Price / Acre In The Permian -- June, 2014

From Seeking Alpha today:

• Aubrey McClendon would seem to be overpaying in his $2.5B purchase of 63K acres in the Permian Basin "unless he knows more than we do," Jim Cramer says while acknowledging that McClendon - a "genius" a buying energy-rich land - probably does.
• Some companies have figured out the "code" to drilling in the Permian Basin, and McClendon is unlikely to have overpaid in the long run, Cramer says.
• McClendon's American Energy Partners is not publicly traded, but investors can benefit from the Permian Basin boom by buying stocks such as Pioneer Natural Resources, EOG Resources, and Cimarex Energy, Cramer believes.

Back-of-the-envelope: $2.5 billion / 63,000 acres = $40,000 / acre.

For that price, Chesapeake should have stayed a bit longer in southwestern North Dakota looking for the Three Forks.

$17,000/Mineral Acre in the Bakken -- Too Much To Pay? -- LINN Energy

Update

Actually this is not an update per se. Rather, I have been thinking about this and determining the amount paid per acre is problematic. 

Here are the facts and one assumption which I think is pretty close to factual:

• LINN Energy paid $194 million for the Concho assets
• Most likely the assets included about 11,193 acres = 17 sections
• Most likely the assets included 2,000 bopd production

Now for assumptions. At 200 bopd/well (and this figure could be all over the map), this amounts to about 10 net producing wells.  Ten wells on 17 sections certainly sounds plausible.  And/or Concho very likely could have working interest in wells on non-leased acreage.

Ten Bakken wells could conservatively have 400,000 bbls EUR. At $65/bbl = $26 million. Ten net wells = $260 million. One could argue, that if LINN Energy picked up 10 producing wells, they could be worth as much as $200 million over the life of the wells. And, of course, the wells hold the acreage leases by production.  Without knowing how many wells, and what kind of wells were included in the acquisition, it is impossible to determine the price LINN Energy paid for the 11,193 acreage.

For that reason, I am changing my mind once again, and going back to $12,000/acre as the record amount paid for Bakken acreage in this boom.

Original Post

This past week it was announced that LINN Energy will buy into the Bakken, paying $194 million for Concho Resources assets.

Unless I missed it, I was unable to find the number of acres that were acquired by LINN Energy in this transaction or the other assets, including producing wells.

Based on the 2009 Annual Report, Concho Resources had 11,193 acres in the Bakken/Three Forks.

Dividing $194 million / 11,193 acres = $17,332/acre. Someone with more current information suggests the price was closer to $16,500/acre.

The previous record was $12,000/acre in the North Dakota Bakken.

Until new information regarding the LINN/Concho is forthcoming, I will consider $16,000/acre the new record for ND Bakken/Three Forks acreage. [Based on the first comment below, and re-thinking this, I will change this to $13,000/acre as the new record.]

[See first two comments below: if LINN Energy bought 2,000 boepd production in the Bakken, that amounts to about $48 million / year at $65/bbl, bringing the per acreage cost down significantly.  Then it is closer to $148 million/11,193 acres = $13,000/acre.]

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The question is whether this makes sense.

Of course, we don't know where the acreage is in the Bakken and most agree that some areas are better than others.

Having said that, some observations.

First, the simplest of observations:

• Most agree that EURs for Bakken wells will be about 500,000 bbls
• If one assumes the price of oil at the wellhead will average $65 --> $32.5 million for the EUR
• If one well is sunk into a 640-acre spacing unit, that $32.5 million --> $50,000/acre

Now, some observations derived directly from the first observations:

• Depending on the location of the wells, some Bakken wells have EURs of 750,000 bbls
• $65 at the wellhead for sweet oil seems conservative
• It is likely that more than one well will be sunk into every 640 acres in the ND Bakken

The edge of the envelope in 2011:

• WLL is placing up to eight horizontals in their better 1280-acre units (current presentation)
• Zenergy wants to create a 3840-acre unit for 9 wells (426-acre) (February hearing docket)
• CLR wants to place 7 wells on a 640-acre unit (February hearing docket)

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For conversation, some further commentary.

I don't like the cliche, "this time things are different."

However, in the case of the Bakken and horizontal drilling, I think there one can make a case that things ARE different this time.

Some background: in the "old days," it is my understanding that vertical wells could have a spacing unit as low as 40 acres. I assume some vertical wells had spacing units of 640 acres, but I don't know.

In the "old days," there were a certain number of "dry" wells. 

Once a well is producing, and as long as it is producing, the lease remains in effect, i.e., the lease is held by production.

Generally speaking, leases do not specify formation.

Therefore, in the "old days," a single vertical well, as long as it was producing, might "control" 40 acres, or as much as 640 acres (one section). 

With the Bakken, I think there are some significant differences:

First, there are "no" dry wells. It happens, but it's rare. Anyone acquiring acres in the Bakken can assume that a well is likely to be productive. It may or may not be a "good" well but it will be productive.

Unlike vertical wells which had spacing units as low as 40 acres, all horizontal Bakken wells will have a minimum of 160 acres; some 320 acres; most, or many, 640 acres; and many, or most 1280 acres. I can't imagine a horizontal well being less than 160 acres. But those smaller units will generally come after the larger units have been drilled, or they will be special circumstances based on geography.

So, now, here comes the "this time things are different":

When someone acquires a lease in the Bakken and drills a well, he/she is almost guaranteed it will produce at least something. Right now, the good wells are paying for themselves (at the wellhead) in 1.5 years; the less good wells taking as long as 3 years. But the wells now "hold by production" 640 acres or 1280 acres for all eternity (the wells are expected to produce for 30 years, and for me, at my age, that is "for all eternity). To me, that is incredible. One well will "hold by production," 1280 acres of future activity.

During the next 30 years, these are my expectations:

• the price of oil will not fall (inflation, weakened dollar, peak oil, supply/demand, political unrest in Middle East)
• exploration and production technology will  improve --> increased production/unit 
• producers will go back in and re-frac (the early wells were fracked with a single stage; they will all be re-fracked; newer wells will eventually be re-fracked)
• producers will go back in with horizontals into legacy formations and new formations (Tyler/Heath, Birdbear/Nisku) from existing Bakken/Three Forks wells

I don't know if $17,000/acre is too much to pay for a mineral acre in the North Dakota Bakken. Obviously the LINN Energy folks don't think so. Will this be the end of appreciating prices paid for Bakken acreage?

Enerplus -- Deja Vu All Over Again

I love it when the Motley Fool sees the same thing I do (a rare event, yes, I know).

One or two days ago I pointed out that Enerplus just paid $10,000/acre in the Bakken for some acreage in the Fort Berthold Indian Reservation.

Today, there's an article at the Motley Foot site that hgihlights that same data point. The Fool says that data point helps one determine the value of other Bakken players, such as BEXP and NOG.