Of Rainbows and Pots of Gold
So what do you think? If the derrick on the left is the closest thing to a pot of gold around here lately, is the rainbow too far away?Maybe it ends somewhere in the 500 acre pool.
posted by Unknown at
7:38:00 PM
15 Comments:
Awesome! So the pool of oil is 500 acres? If they pull oil out of that do they have to pay other people that the oil is under their land? Or just y'all since the derrick is on y'all's?
This pool is just under 500 acres. I don't know what the range is, but probably somewhere from 4-500. Actually, the derrick is just over our property line on the acreage we sold, but yes, everyone in the pool splits the money. If they put another one actually on our land, then we get a little more, especially if is within about 250 feet of the house. We may never get anything out of this, but it is still interesting to learn up close and personal about one of the biggest industries in the state, and especially one that is so in the middle of the country's worst economic crises. I found a gas ticket in one of the books I was listing on Amazon that was for $3.80. Not a gallon, but for 15.3 gallons at 24.9 cents a gallon. That is what most of us older ones remember, and that was after it went up. The year was 1967--when Russell was three years old.
I did not realize that I was signed in on Poppy's account--that was my posting.
Granny
Ashley--it is the land that is pooled. There may or may not be oil (and they are really drilling for gas, which is more likely around here).
Love,
Granny
I thought they made the gas from the oil?
Wow, 24.9 cents a gallon!
I remember mom and Steve getting random change to put five dollars in the tank and actually getting somewhere.
There are lots of places where you see the sign from an old gas station that says "39c" or "99c" next to a new operating gas station that says "$4.00" or whatever it is now and I always wanna go inside and say "I want the lower listed price, please."
Ashley
NATURAL GAS--Like you use for cooking, heating, etc.
Gasoline for your car is a refined by-product of oil.
Yes, Ashley, he is right. This is natural gas they are seeking. Apparently there is a lot of it under East Texas.
This is the real David R. Snow:
There are some interesting comments here. It reminds me of the poem about the blind men and an elephant, each touching only a part of the elephant like the ear, or the trunk, or the leg, and then immediately concluding that they had an accurate picture of what an elephant looked like.
As David has pointed out, there is a product called natural gas that comes from deep within the earth. It is the product that is commonly piped into our houses that we use to cook with and to heat with. The gas company puts a certain distinctive odor in it so we can smell it if it happens to be leaking.
Uncontrolled, it can cause us a lot of trouble like explosions and fires, etc. But, controlled, it is a blessing and helps us to live with the luxury of hot water and heat for our homes in the winter and heat under the pot for cooking, unless of course, we have an all-electric home like we do.
A big use for it today is heating water to steam and then using the steam to turn electric generators to provide electric power. Small electric power plants like this are springing up all over the place. Also, processing plants that produce all kinds of products use large quantities of this natural gas in their manufacturing processes. So this stuff is quite useful and necessary to our present way of life and is very important to our economy.
Natural gas is found several thousand feet, the depth depending on the geographic location. It takes a drilling rig and skilled workers and lots of cash to produce a gas well. In our area the wells are producing around a million cubic feet of gas per day once they are completed and hooked to a pipeline. The gas is sold in 1000 cubic feet units and the current price is somewhere around $10.00 at the wellhead. So you can see that there is a lot of money at stake. A single well can produce millions of dollars in its lifetime of 20+ years.
All this money is divided up among the participants in the well. When a well is drilled, it is drilled on a lease, which may be several leases pooled together making up the lease pool. These pools can be 300 acres or 600 acres, depending on several factors.
The producer of the well--the company who bought the leases and provided the money to drill the well and get the product to market--gets its share of profit and its costs reimbursed and then each mineral owner shares in the rest on a per-net-acre basis.
Minerals beneath 100' of the surface are owned separately from the surface so a land owner may therefore own the minerals in full, in part, or not at all. Mineral interests are bought and sold just like the land above, but not necessarily at the same time. Mineral interests are owned as acres.
For example, when we bought the acreage we live on, unknown to us, we also received a 50% mineral interest in the property. This fact was discovered much later, when a land man (one who looks up courthouse records for the purpose of discovering who owns what) called and asked if we wanted to lease our minerals. We said yes and executed a 3-year lease that was to expire on June 24, 2008 (if drilling had not begun on or before that date).
Drilling on a lease continues the lease automatically for as long as the drilling effort is underway and/or production commences. Later, we purchased a few more acres next door to us fortunately with 100% mineral rights, which we also leased. We therefore have a few acres of mineral interest in our properties. We then were informed that a well was about to be drilled. The drilling was to take place on adjoining property. Our two properties were included in the pool. So, a well was started on June 23, 2008 thus continuing the lease.
After the operator gets theirs and all the other mineral owners within a 450-500 acre "pool" of mineral leases, we will get a per acre share per month, based on the current market price and the current production figures. That is, if the well produces gas in commercial quantities. Before we get excited, bear in mind that we will wind up with a rather small percentage of the total pie after profit and expenses are taken out. Whatever it is we will be grateful. But it may all be a moot point and turn out to be what is known as a "dry hole" and nothing further will occur but perhaps some disappointment. So, the whole business is very risky the people who play the oil game sometimes win and sometimes lose. The objective of the game is to win more than one loses.
A side note might be in order at this point. This is directed toward those public figures (especially the ones in congress at present) who are carping about the exorbitant profits the oil companies are supposedly making these days. As mentioned earlier, the oil and gas business is risky and for a company to even attempt to drill a well, they must have very deep pockets and be willing to go through a whole bunch of government regulations and then wait long periods of time for it to come back, if it does. If it does not, then that money is lost, hopefully to be made up out of some future success.
Let us not, then, be too hasty to overtax and otherwise deter the goose that lays the golden eggs with the proposed windfall profits taxes and other crazy ideas that we hear from Washington these days. These so called excess profits maybe just the fuel needed to power that great economic engine we all enjoy every day.
Meanwhile back at the ranch, we were talking also about oil. Oil is also found in quantities deep beneath the surface of the earth. When it is first brought up, either of its own accord due to internal pressure in the earth or with the help of a pump, it is called crude oil. That is the commodity that is sold by the barrel; the barrel that we hear so much about the price of these days. Wells drilled for oil specifically are drilled in areas known to have oil down there someplace. But, often oil and gas can occur from the same well. If it does in our case, then we will also get a monetary share of that production as well. We can only hope.
Oil must then be treated, heated (with fire made from natural gas) and turned into heating oil, diesel fuel, motor oil and gasoline with each product being more volatile as it develops into substances with less and less viscosity.
Bottom line is that we may never see a dime from all this, other than the small amount they paid us for the initial leases. Or, we may see some monthly checks that will help us make ends meet a little neater in the future. It would also be nice to know that maybe we can leave a little for our children when we are gone from this life.
I think about these things as I sit here at my computer and hear the constant rumbling of the diesel electric units (the same units that power a diesel locomotive) and the periodic squeaking and rattling of the drilling rig 674 feet down the hill from my office.
Maybe now, we can get a better view of that elephant.
Dave
That was a most informative essay. Thanks for sharing.
I remember a few years back when the oil companies were enjoying record profits, the executives were dragged before Congress to justify the "outrageous" sums they were making. One of the executives gave basically the same explanation you did and added this comment:
"A few years ago oil prices were at a record low and and oil companies were really hurting, with many of the smaller companies and independent operators going bankrupt. I don't seem to remember Congress or anyone else rushing to our side to ask how you could help us make it through the bad times."
Soft? Mushy?
Thanks for explaining all that poppy. :)
So whats the latest???? This is all very interesting! Great explaination poppy!
Samantha Leade
Right now they are drilling. It could be any day now that they hit the gas. Randall, who works in drilling and understands this stuff better than we, has explained it to us, but I don't think I can quote it or get him to write it down. However, it seems that when we see a flare, or gas burning, we will know they hit.
In the meantime, we are waiting to see if Prunella sprouts some more kids. We know what to look for there.
Take care.
The Snow Saga!Fantastic! I hope you hit 'pay dirt'. Way back in the 50's when we were in the drilling business, I was shocked to meet many investors who actually hoped for a dry well. They were investing in oil drilling because, at that time, there were excellent incentives....tax writeoffs, especially. A dry hole meant the investor could write off the loss against some other investment that was bringing in lots of dough. At that point in time, many movie stars were anxious to drill for dry holes!! Love, Betty
Cousin Betty, you really ought to publish! Between the advice you've given me and true stories of your life you've told there's a best seller in there somewhere! I still wish I could actually meet you, but I don't think I'll be traveling to Prague anytime soon.
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