August 10, 2008
Get Rich With Oil and Gas Leases Well, Maybe
By Bill McCarthy
By Bill McCarthy
CHEYENNE - Oil companies are setting records for profit.
Every time you fill your pickup, you feel like you are pouring your children's college fund into the tank.
Yet you live in a state that produced 53.3 million barrels of crude oil with an average price of $58.91 and 2,145 billion cubic feet of natural gas with an average price of $4.65 per 1,000 cubic feet in 2007.
And it looks like 2008 energy prices may make 2007 look like salad days for consumers.
Where's your share of Wyoming's oil and gas abundance?
The federal Bureau of Land Management had an oil and gas lease sale Wednesday, as it does every two months at the Holiday Inn in Cheyenne.
The agency put up for sale leases for 155,121.61 acres in 163 parcels through oral bids.
With all those acres and bids as low as $2 an acre, the average guy off the street might think he could get in on the action.
And you weren't there.
Can anyone walk in off the street and buy a lease?
"Sure," said Maurice Brown, an independent oil producer, as he prepared for Wednesday's sale.
All you have to do is be 19 (the age of majority in Wyoming), show up between 7 and 8 a.m. when the sale starts, register and get a bidding number.
And you can start bidding.
"But they may think later, 'That's not such a good idea,'" Brown added.
On the day of the sale, successful bidders must pay a one-time administrative fee of $140 per parcel, the first year of a yearly rental fee of $1.50 an acre and the minimum bonus price of $2 an acre.
And parcels come in a variety of sizes.
There were a few small parcels available Wednesday, in the 40- acre range, but you also have to remember this is a competitive bid, and the parcels that are put up for auction are suggested to the BLM by industry professionals.
A lot of times those smaller parcels are put up by the oil companies because it is a small piece of field that they want to fill in, said Pam Lewis, BLM branch chief for fluid mineral adjudication.
Bids Wednesday ranged from the federally mandated minimum of $2 an acre to a high of $1,220 an acre.
So how bad do you want it?
Also remember that the $1.50 an acre for the first five years of the lease goes up to $2 an acre in years six through 10.
And if you bought a lease last Wednesday and paid the minimum $2 an acre, but the actual bonus bid was higher, you have to come up with the rest of the money by Aug. 19.
You also are going to have to come up with a way to get the oil and gas out of the ground and to market, likely by hiring a drilling outfit.
You also will have to put up a bond before the drilling starts. At a minimum that will be $10,000.
Brown has been attending the auctions since 1963, and he said it is not for the faint of heart or the uneducated.
He started by reading all he could on the topic, and now he also reads the crowd.
He noticed quite a few new faces on Wednesday. "Sometimes the (oil) companies send new people to bid so that you won't know what they are doing," he said.
Few of the bidders are independents like Brown, though. Most work for the oil companies or are brokers, said Lewis.
Ann Trujillo-Metzler is a broker with Trujillo Mineral Land. She is a second generation oil and gas lease buyer and said it takes many years of experience to build a good reputation so that companies will trust you to bid for them.
"You have to develop contacts and trust," she said.
As soon as a new sale book comes out, Trujillo-Metzler begins working with her clients to figure out what they want.
But parcels you might want to buy can be pulled at the last minute. Six came off the auction block Wednesday.
Those parcels may be in core areas of sage grouse habitat, which the state is trying to map in an effort to keep the bird off the Endangered Species List.
And Brown pointed out that all the parcels were under protest by one environmental group or another.
You will get your money back if you buy a protested lease and the BLM finds the protest has merit, but you won't be able to produce anything from the parcel until the protest is resolved.
When you do start producing, you will have to pay 12.5 percent in royalties.
"We keep track of every drop of oil," said Michael Madrid, BLM branch chief for fluid mineral operations, lands and appraisal.
Madrid, a petroleum engineer, said BLM does no evaluation that can tell you whether a parcel is rich in oil and gas or a dry hole. But he says a person with geologic knowledge who is willing to do the research can increase the odds.
Madrid and Lewis said a group of people could pool their money and knowledge and make a serious play.
Lewis said that sometimes parcels that did not sell can be picked up and produce.
People willing to work hard and educate themselves can still be successful, even as wildcatters, she said.
Parcels that do not receive bids at the auction are available noncompetitively for the yearly rental fee - $1.50 per acre for the first five years and $2 per acre for the second five years - and a $360 administrative fee at the BLM office in Cheyenne.
Teresa Howes, BLM office of communications chief, said people should keep in mind the careers that are possible due to the industry and all the ancillary industries, such as pipeline transport and construction.
"There are different ways to become involved," she said. "For an entrepreneur, there's always a way."
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