The fully documented process of originating, acquiring, and developing a government oil and gas drilling lease.
1. Nomination
Long before the auction, Federal and State land authorities begin compiling a list of public land parcels that will be offered at the upcoming sale. Many parcels are nominated by oil companies who would like the opportunity to purchase them for drilling. Other parcels are added to the list by government agencies—often creating a demand from horizontal drilling projects seeking to protect and preserve strategically located drilling rights adjacent to their pending horizontal drilling projects.
2. Advance List
At least a month before the auction date, a list of all parcels to be offered at auction is made available to the public. These include exact legal land descriptions. These lists are published online as well as mailed to regular bidders and other interested parties. No information, other than legal land description, is provided. This is where the services of a geologist are required to analyze every parcel as the lease up for bid may be solid granite and worthless, or in an area that has been proven to be absent of hydrocarbons.
3. Purchase
At the scheduled time lease parcels go up for auction. This can be through traditional oral auctions or on-line auctions that have become increasingly popular. The successful bidder is required to complete paperwork before leaving the auction. Full payment is due within 48 hours of the sale. Buzzico bids as a proxy for its clients. After the lease issues Buzzico assigns the lease in the client’s name, or any other entity designated by the client.
4. Issuance
Leases do not go into effect immediately. Successful bids are referred to the respective government agency which performs the necessary internal paperwork. The bidder may or may not have to sign the lease and have it notarized. It generally takes four to six weeks before the lease issues and goes into legal effect.
5. Assignment
Your lease is now public record and oil companies wishing to acquire the lease will then contact the lessee and negotiate a purchase price per acre as well as a royalty percentage based on total hydrocarbons produced on the lease. The title to the lease is then assigned to the oil company, with royalty in perpetuity to the seller. (You) Buzzico can assist with the negotiations and sale if the client so wishes. Some leases sell within a few months while others take longer.
6. Application for Permit to Drill
Before an oil company can drill your lease, it must engage a professional surveyor to precisely survey the proposed borehole location and elevation of the potential drill site. This information, along with planned total depth, formation(s) targeted, and various other data, must be submitted to the respective government agency in an Application for Permit to Drill. Variances from certain regulations may be requested with the Permit, which is again, public record. If a company thinks it has a hot prospect and doesn’t want to tip its hand, it may request a "tight hole" status, where only the location is in the immediate public record. These applications are usually approved. Approval may take a month or two. When an already approved horizonal drilling project takes over a client’s adjacent drilling rights, it frequently adds the lease to their already approved project, offering a pooled-acreage royalty.
7. Sundry Notice
The time it takes to drill a well varies enormously due to a number of variables such as depth, drilling difficulty, weather (Wyoming winters), etc. It may take anywhere from a couple of weeks to over a month. Once the well is drilled to total depth and cased, the operator must file a Sundry Notice of intent with the government agency before such actions as fracking, acidizing, beginning production, plugging back, shutting-in, abandoning the well as a dry hole, etc.
8. Production
The completed and tested well is ready to produce oil and/or gas. Government agencies carefully monitor any production. Potential royalties are paid directly to you by the oil and gas operator in perpetuity from the sale of any/all oil and gas produced from your lease.