A week ago, I attended a land auction to see if I could pick up some additional oil production. I’m not sure what land is going for in your neck of the woods, but around here it’s gone crazy!

Tracts 1 through 3 and 5 were primarily farm land, with acreage ranging from 30 acres to 300 acres. One of the tracts had some oil royalties attached to it that only amounted to about 200 barrels per year.

The farm land alone went for nearly $2,000 per acre. Unreal.

Tract 4 was what I was interested in. 630 acres (a full section) with all the mineral rights associated with the land included, with existing production, and the ability to drill out the section. I went in mainly to observe, knowing that I’d be way out of my league in no time at all. I figured the land would bring at most $1,000 per acre since it was such a large tract.

I’ve been wrong before.

The bidding started at $800 per acre, and the auctioneer quickly had the bid above a cool thousand an acre. Here’s where it gets interesting. About 5 minutes into the bidding, a gentleman walked in through the back door and immediately started bidding. This guy was so far out of his element it was funny. His hair was slicked back, a Bluetooth gizmo hanging from his ear, a pair of dockers accented by Nike tennis shoes, and to top it all off, a dark pair of sunglasses and brown leather satchel.

Not terribly out of place for, say, New York, but this was central Kansas where overalls, work boots and a cowboy hat was considered all gussied up. Out of about a hundred people, all of which knew each other, not a soul knew who this foreigner was, but he was sure cranking up the price on this land!

The bidding ended at $1,350 per acre, with the final bid being held by Mr. Big City. All in all, taxes and fees included, the guy probably ended up shelling out $1 million for a single section of land.

Too rich for my blood!

The spring will bring new opportunities, as many folks try to off load acreage during the rush. I’ll keep an eye out for a steal of a deal in the future.

Business, Energy, Oil & Gas Investing, land auction, oil and gas

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.

Business, Oil & Gas acquisitions, business development, land auction, leases, oil and gas, petroleum