In a press release dated 26 December 2017, Permanent Court of Arbitration on behalf of the Conciliation Commission conducting arbitration into the defining of a maritime boundary between Timor Leste and Australia, said that the two countries and the Greater Sunrise Joint Venture (GSJV) had agreed the signature of a maritime boundary treaty in early March 2018.
On 30 August 2017, the governments of Timor Leste and Australia reached agreement on a Comprehensive Package Agreement regarding maritime boundaries in the Timor Sea. This agreement was formalised into a draft treaty and initialled by each government in October 2017 in The Hague.
Timor Leste Maritime boundary
In broad terms, the draft treaty delimits the maritime boundary between Timor Leste and Australia in the Timor Sea and establishes a Special Regime for the area comprising the Greater Sunrise Complex (GSC). The draft treaty also establishes revenue sharing arrangements where the shares of upstream revenue allocated to each country will differ depending on downstream benefits associated with the different development concepts for the GSC.
The GSJV operates the GSC which currently straddles the Australia and Joint Petroleum Development Area (JPDA) boundary in the ratio 79.9:20.1 in favour of Australia. The GSC includes the Sunrise, Sunset and Troubadour Fields. Sunrise was discovered in 1974 which means the discovery and associated fields have been stranded for some 40 years. In 2010, the GSC total contingent resource was independently certified to be 5.13 trillion cubic feet of dry gas and 225.9 million barrels of condensate. The GSC joint venture comprises: Woodside (operator 33.44%), ConocoPhillips (30%), Shell (26.56%), and Osaka Gas (10%).
A few years ago while heading back home to visit my parents, I zoned out, as I often do when driving, and began thinking about a CPL luncheon I recently attended.
The speaker was going over the nightmare that is Texas’ legal descriptions and the history of what makes it so unique.
The piece of the discussion that I was fixated on was around the safety net that the State of Texas put in place early on to help stop title failure due a mistakes in writing or typing the property descriptions for real property records. He highlighted the fact that at the end of most tract descriptions, sometimes in lieu of tract descriptions, the drafting party will make a reference back to the source deed from when that particular tract of land was created. I realized that meant that every time that property was sold since its inception, the drafting parties always referred back to the same source deed.
That’s when I blurted out “Prior References!” to my wife. I went on to explain to her, in great detail, how we could capture the prior references not only in the tract descriptions but anywhere in the body of the documents when we process Syndicate records and by doing so in a relational database we could change the way the entire Land and even Title industry links chains of documents by allowing them to enter a record and bringing back every document that has referenced it… to which she said, “You’re soooo weird.”
Weird as I may be, today at Drillinginfo we have taken that step forward, along with quite a few other improvements.
Running title in Texas is always the equivalent of a super marathon, so let’s take a look at some of the features of our new Courthouse 2.0 tool, which you should see on the front page of your gallery as you’re logged in. (You will only have access to land information to which you are subscribed).
First a simple search of Grimes Title Plant where either the grantor or grantee is Weber Energy immediately flows back 143 results.
That’s pretty cool. Let’s click on a Memorandum of Oil and Gas Lease from Worden Rose M Garza…
And now you have the document itself, and can click on the blue button to add to your runsheet.
This is all well and good and outside of its blazing speed and clarity is pretty much what you’d expect. But let’s focus on the prior reference mentioned in the tract Description (vol 396 page 520). If we were to enter vol 396 page 520 into the new Prior Reference tool, we will see the 14 documents filed in Grimes County that have referenced that source deed. Just like that, we have been able to find every deed and lease that has taken place on this property since its inception. Now that’s a powerful new way to run title searches!
We’ve closed the gap
Literally, we have closed the gaps on our polygons. We are excited to have rolled out the result of a process where we have upgraded our basemap to a more spatially accurate one for better concordance to various aerial photo layers, while simultaneously normalizing all the various tract layers to one another and the basemap.
We’re closing the gap (part 2)
Very soon, you will be able to do your courthouse searches from within the landtracs polygons in production workspace and vice versa. All of the relevant information from legal descriptions to production records will be easily available in one place.
Speed and Performance
The new system architecture is very fast. And by viewing searches and saved runsheets in the same view you will save even more time. But you don’t have to take my word for it – watch our CEO Allen Gilmer navigate through a number of our leasing improvements in this 6 minute video.
Changing the terms of oil leases may increasingly become a viable win-win solution for both operators and mineral owners either seeking financial relief or to strengthen their position.
Such is the case with the University of Texas, owner of more than 2 million acres of prime oil assets.
The school is hoping to parlay its massive holdings into an even mightier revenue engine by renegotiating existing leases with operators under pressure to cut costs. The UT case is illustrative of the broader environment in which mineral owners and operators are more open to working together toward win-win solutions such as re-evaluating the terms of lease arrangements.
A lease renegotiation could result in a staggering threefold increase in land values for the University of Texas, which already holds the largest endowment of any public American university. Recognizing the scale of this opportunity, UT wants to adjust how royalty payments are calculated on leases that were not only signed decades ago, but built on pre-shale revolution assumptions that have now completely changed.
Before the shale boom, most conventional wells were drilled vertically downward until they punctured pools of crude lying at great depths. Now, we can drill unconventional, horizontal wells into multiple layers of pancaked rock, creating distinct zones in their own right that should arguably factor into valuation models.
Mineral owners sitting on shale deposits that are suited for newer extraction methods may have royalty rates written into old lease agreements that are far beneath the potential value of the assets. Some states require that the landowner be paid a minimum royalty, often 12.5%. However, the negotiated rate can be much higher, typically around 25%, depending on multiple variables such as geological factors, nearby drilling results, market dynamics, etc.
The geological variable is arguably the most critical component in calculating a royalty rate. Because stacked lateral drilling can increase ultimate oil and gas recovery, this could justify higher royalties for leases in a shale play with thick, stacked rock. UT not only wants to adjust how such payments are figured, but also argues that it should be allowed to lease stacked horizontal zones within shale rock separately. This would mean that acreage which had, say, a single lease permitting vertical exploration rights to the center of the earth, could now consist of multiple, separate lease arrangements for horizontal zones, all owned by UT.
The combination of additional revenue streams coming in from a greater volume of leases, in addition to higher royalty rates for leases on shale acreage, could be a boon for the University of Texas, as well as for mineral owners across the country, if the school is successful in its efforts.
A solid understanding of the geological makeup of a play can give both mineral owners and operators better footing in renegotiating a lease. This topic may become ever more important if UT can achieve a successful recalculation of royalty payments, setting a precedent for a new leasing model that could redefine the rules for how mineral owners of shale regions across the US get paid by oil companies. Furthermore, the new model would likely be replicated quickly across the country, causing numerous leases to come up for re-evaluation.
Similar to how the University of Texas has armed itself with a team of geologists to identify the plays with lease renegotiation potential, both mineral owners and operators would be well served by understanding key geological factors of the acreage they have stakes in, such as shale thickness and high-production reservoir zones, that could play a key role in negotiating royalty rates upward. Check out this Drillinginfo infographic that shows you how to identify the best horizontal zones in a stacked play.
A few weeks ago, Deon Daugherty from Rigzone made the point that the OPEC cartel is not working. When Saudi Arabia’s oil minister Ali Al-Naimi talks about leaving oil prices up to the market because it is “the most efficient way to rebalance supply and demand” it proves that Daugherty may be on to something. The whole point of a cartel is to control output and prices so why leave it to the market?
Delia Morris, senior market analyst at Rigzone Data Service says U.S. shale is to blame, ‘shale producers are the upstarts and they’ve messed up the whole oil world order.’ A major factor driving this change is good old American made competition and it can be traced back to how the U.S. manages mineral rights ownership. Unlike OPEC countries and even some non-OPEC countries the U.S. mineral rights ownership rules have created a system that is not subject to the whims of government, fostering a truly capitalistic environment that has spurred competition, innovation, and a new ‘world order.’ To stay relevant both OPEC and individual U.S. E&P companies need to manage the intense competition, innovation that is bred from the U.S. mineral rights system.
To understand how mineral rights ownership can lead to so much disruption in OPEC and intense competition for U.S. E&P companies let us first understand how ownership differs between the U.S. and the rest of the world. In almost all countries property owners have no rights to the minerals that lie underneath the surface land they own. By contrast in the U.S. if you own a piece of property you also have the right to extract any minerals that are found in the subsurface of that land. This difference has huge consequences for the efficiency of oil and gas exploration and production. This point cannot be overstated because it changes the entire structure of the U.S. oil industry.
In the international system governments offer licenses to oil companies that wish to explore or extract oil and gas; however, bureaucracy and politics inevitably causes large delays that can sometimes take years to resolve. In the U.S., oil companies contact and negotiate terms with the owner of the mineral rights directly. These mineral owners can be highly motivated to develop their land because of the lucrative royalty payments associated with making a deal. This changes everything.
The fact that the mineral owners are highly motivated to lease their rights means two things:
You don’t have to be a large oil company to partake in the industry because small producers actually have an advantage when competing for land due to the fact that they are more likely to actually develop the land they lease, and generate royalty payments. This leads to more companies and more competition.
The speed at which oil companies can go from looking for prospects to actually extracting oil or gas is significantly shorter than the rest of the world improving the economics and further reducing the barrier to entry into the industry. This again leads to more companies and more competition.
What does this mean for OPEC and your land strategy?
It means competition drives the oil markets and Al-Naimi’s comment, ‘we’re all in this together,’ is unfounded. As Morris points out, ‘That’s not how capitalism works.” OPEC cannot expect US producers to act like a cartel and cut production and US producers can’t expect to stay relevant without constantly innovating and becoming more efficient.
For a U.S. E&P company, streamlining your land acquisition process is part of that equation. With U.S. mineral ownership laws driving lower barriers to entry, flooding the market with new competitors you need to find ways to beat them to the best land. At Drillinginfo we are dedicated to innovating and accelerating the search for open acreage so you spend more time negotiating deals not finding them. Our mineral ownership laws have driven down the time to spud from years to months. Drillinginfo is pushing that even further by finding innovative ways to squash even more inefficiencies. Check out this video to see how we are doing this:
The W.T. Waggoner Estate Ranch is a behemoth piece of Texas land with a legacy to match. With over half-a-million acres spread over six counties, it’s reportedly the largest U.S. ranch within one fence. The sale of the property was mandated by a judge after the Waggoner heirs could not agree how to liquidate, and on February 9 NFL Rams’ owner Stan Kroenke agreed to purchase the ranch. Listed at $725 million, the ranch is one of the top cattle ranches in the country and is also home to esteemed quarter horses, polo fields, and several lakes. The property rests in the North Central Plains region of Texas.
But it’s not just a scenic cattle ranch. The Waggoner Ranch is major producing oil and gas asset with potential for more exploration.
Although the sellers wish to preserve the rustic character of the property, there’s plenty of room to develop new oil and gas wells throughout. There are already a reported 1200 oil and gas wells already on the property that have successfully been incorporated into the landscape. In addition to the massive existing production, it’s the opportunity to explore in the future that should have E & P’s closely monitoring the sale. The new buyer will reportedly be receiving 42% of the mineral estate, and the Waggoner family will (very wisely) retain 25% mineral interest in the land.
To look at what reservoirs are in play in the area, we did a simple production search in DI Desktop. We limited our search to active oil wells in the six Texas counties Waggoner Ranch covers: Archer, Baylor, Foard, Knox, Wichita, and Wilbarger. We then combined results based on name alone for the eight reported reservoirs with the highest well count (excluding those where the reservoir was not reported).
Active oil wells in the vicinity of Waggoner Ranch. Colored by reservoir. Red represents all other reservoirs. As seen in the previous table, wells with production from the Cisco (green) and Gunsight (dark gray) reservoirs are most numerous.
A look at an oil field in Wilbarger County. Production bubbles are based on daily oil. Grayback is 12.5 miles SSE of Vernon, TX. Grayback is slightly east of Zacaweista Ranch, one of the three subranches W.T. Waggoner established for his children. The well highlighted is a relatively new vertical drill targeting the Coleman Junction formation. Many of the oil wells on the ranch are historical, dating back to the 1930s. Active oil wells with first production after January 1, 2010 colored by drilling trajectory. Twenty-three horizontal wells have been drilled which meet this criteria. Bubble size represents daily oil. The big producer to the north is the Fargo Unit 4102H (API 42-487-33072) operated by Tradition Resources. The reservoir is reported as ‘consolidated’.
A correlation of generalized geologic column and electric log, Wichita and Archer counties, Texas. Source: Petroleum Engineering Study of K.M.A. reservoir, Southwestern Part K.M.A. Oil Field, Wichita and Archer Counties, Tex. Rollie P. Dobbins, Marion L. Ayers, and Roger E. Lewis. Bureau of Mines, Report of Investigation 4892 (June 1952). http://digital.library.unt.edu/ark:/67531/metadc38582/m2/1/high_res_d/metadc38582.pdf Wells in the Cisco formation target Late Pennsylvanian fluvial and deltaic deposits. The geology is defined by the Electra Arch (center) and the Red River Arch (above), which runs east west across the northern border of Wilbarger, Wichita, and Clay Counties. “Electra” refers to the city of Electra, which is named after W. T. Waggoner’s well-known daughter. Source: http://www.waggonerranch.com
A north – south geologic cross section. Both sandy beaches and deltaic deposits are present. The Electra Arch complex is a carbonate platform. Source: http://www.waggonerranch.com
Using DI Desktop, we performed a production search and then grouped by operator to see what companies were active around Waggoner ranch. Layline Energy was the top, with 1095 active oil wells. Layline focuses on acquiring and improving mature onshore oil fields (Bloomberg). None of the majors had active oil wells in the six counties.
Oil production statistics for the 10 most active operators in the six counties touching Waggoner Ranch (based on active oil well count) Pipeline connectivity surrounding Waggoner Ranch. Nustar, Plains, Phillips 66, and Enterprise pipelines convey the crude. Lantana Midstream and Atmos carry the natural gas. The most connections are present around the dense oil wells in Wichita County, but the ranch only covers the western edge there
Historical production from the Cisco reservoir, including both active and historical oil wells across Archer, Baylor, Foard, Knox, Wichita, and Wilbarger Counties. Total production peaked around 1965, with the well count beginning to decrease around 1990
A type curve for Cisco producing oil wells. Year 00 is the first year of production. Water production closely mirrors oil production. A steeper decline is observed for years 00-19. After about year 43, year over year production levels out somewhat
The sale of the Waggoner ranch is something to keep a keen eye on. The new land owner might be eager to further expand the scope of oil and gas activity on their new property. With some 510,000+ acres in Texas, operators should have a game plan ready to move fast and get the best acreage the new owner may be willing to lease. Despite the maturity of the area, new vertical wells are being drilled all the time and providing solid production.
When you observe competitors closely, you learn a lot from their failures and mistakes. According to Princeton University, we are biologically inclined to feel good when competitors fail, so do not feel guilty. Instead, try to learn something from the competition that can help your business. Digesting competitive information and acting on it is the next best thing to predicting the future. Here are some examples of how others made the most of someone else’s misfortune:
Even on the international scene, smart competitors are constantly evaluating the competition for opportunities. Drillinginfo’s CEO Allen Gilmer explored China’s investment in Venezuela and what it means for both countries over the long-term. Even with a decreasing well inventory, China determined that Venezuela is a good investment and an ideal place to increase its presence in South America. It already controls 33% of Venezuelan crude oil and will keep expanding.
Tip: Study how your competitors are failing, then see how you can benefit. The right software can work wonders for this. In fact, one Drillinginfo customer used DI Analytics to benchmark competitors’ productivity in a certain area, and then used that information to develop a better engineering plan that improved production.
What would you do if your competitor was also your neighbor? For one land team, an ideal area of interest turned into a complicated opportunity thanks to nearby competing wells. Since the team subscribed to DI Plus, it had plenty of data to analyze. The team leveraged the LandTrac feature to find permits filed with the RRC. Then, it quickly identified open acreage and contacted mineral owners before the competition could act.
Tip: Stay positive by looking for opportunities near the competition. You never know what might turn up and how quickly you have to work in the face of a nearby nemesis.
Competing on Price
When oil & gas prices are low, operators get worried─but should they? There is a surprising range of break even points for operators in certain plays, such as Bakken and Eagle Ford. The chart below shows a wide range of break even prices and after-tax IRR by play:
Even when prices get really low, unconventional plays break even Source:www.linkedin.com (Allen Gilmer)
As you can see, an operator using the right practices can still make money in many plays.
Tip: Analyze as much as data as possible to improve production. Many oil and gas companies avoid working with Big Data, and their loss is your gain. For example, finding better well completion parameters provides a big boost to your bottom line. Analyzing factors such as percentage of ceramic proppant and lateral length of the well makes a big difference in completion parameters, which leads to better production models and a higher return on investment.
Competitive situations differ so much that you must develop different strategies to address them. Whether you face competitors that are nearby or far away, rethink how you approach these challenges if you want to thrive in tough times.