The note on expiries is not true at all. In heavily developed areas like the Bakken this may be true, but a lot of companies in Texas/OK are going to struggle with acreage retention. There are 2 problems for companies on acreage retention.Originally Posted by ExtraSlow
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1. There is a lot of land in “core” areas being held by old vertical production that is will be negative LLI at this point. Companies will need to keep producing at a loss to hold acreage - companies were producing at losses on old verticals at $50 oil so it will be even worse now. With every company cutting costs it will be interesting to see how they keep fields running with negative LLI’s. Typically when wells go down a company has 60-90 days to turn them back on. 2 problems come up which are either the company decides to stop producing at a loss, or with companies reducing field staff they don’t properly report offline wells to the office & don’t get wells back online on time. On top of this, a lot of the old leases use the term “producing in commercial quantities” in regards to retention meaning that operators producing at a loss may also risk losing a lease if a landowner wanted to force the matter, however, The majority of private landowners typically aren’t sophisticated so this issue won’t be pushed.
2. Acreage retention terms in new leases in TX/OK are absolutely horrible for companies. Typically you will only retain the “bench” you have drilled, and could typically have to drill 4-6 HZ’s to retain a bench in a standard section. An example of benches in Alberta is the Upper/Middle/Lower Motney...Under new TX/OK leases drilling the middle Montney would only let you retain the middle Motney while the upper and lower would expire. Companies typically claim they have 4 bench’s in the Wolfcamp formation meaning to hold the wolfcamp formation in a section a company would need to drill 16-24 wells. Companies hold all acreage under these newer leases typically through “continuous drilling clauses” which basically say you can hold the entirety of a lease if you continue to spud wells within a certain timeframe (90, 120, 150, 180 days), but if you ever miss that all rights under the leases not held terminate. Companies can’t afford to keep drilling at these price levels so there acreage will expire through walking away from a CDC.
There is obviously a lot of variability when it comes to private leases but the long and short of it is that a lot of land will be expiring if prices remain depressed.
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