I’m starting to shift my resources back to expanding my oil and gas business. Not that it has been on autopilot completely, it just hasn’t required much attention lately, which can be attributed to having good people run the day-to-day production.

It’s time for more though, and I’m looking to increase production through additional acquisition or drilling.

This weekend I’ll attend a land auction with five different tracts for sale. Tract four is the one I’m interested in, as it has existing production on a full section, which equals about 640 acres. According to state records, there are five producing wells on the section, and between the five wells, the lease produces 150 barrels of oil per month, and has done so for the last several years. They are shallow wells drilled to about 1,700 feet, so consequently there is little to no reservoir pressure to push oil into the well bore.

The land, including the mineral rights are up for auction, and the existing lease would have to be upheld. However, that’s not to say that a new land owner could come in and force the existing producer to drill a certain number of wells per year to hold the rest of the acreage.

The timing of this is not all that great. Crude oil ($wtic: chart) just closed above $100 per barrel, so picking up any acreage for cheap will be nearly impossible, and there are a lot of big players in the game right now that are willing to risk more capital than I am.

The nice part about buying land with existing production is that the drilling risk is fairly low, especially in widely developed fields with long production history (production in this area dates back 80 years or so).

I suspect I’ll be a little out of my league on this, but it will be interesting to see what 640 acres brings in terms of $/acre. If it goes for anything less than $1,000 per acre it will be a steal. I’ve been doing quite a bit of digging on the state geological surveys website, and I’ve determined that there is a lot of potential in the area, all it takes is money.

I’ll let you know how it goes.

Tags: acquisitions | business development | land auction | leases | oil and gas | petroleum

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