The SIROS evaluation process involves engineering, geology, and economic factors to evaluate land potential. Our goal is to give our clients the science and processes behind how we evaluate your land and arrive at an offer. We broke down our decision making factors below.
Market Prices & Timing
Oil & gas commodity prices can change quickly and are very unpredictable. No one can accurately predict what oil prices will be even a month in advance. If rig counts or production nearby dramatically change, working interest and mineral values can plummet or skyrocket. If you end up with a higher or lower offer than you did a year ago, be aware that interest and mineral values can change in a matter of days. Additionally, just like the stock market, political factors can make oil and gas prices fluctuate significantly.
Basin Rig Activity
In addition to just following rig count to determine if the basin is a desirable investment area, other rig trends can help figure out what specific areas or counties operators are targeting. If Bakken rigs are concentrated in certain areas, that might indicate a hot spot. Additionally, if your area is already full of concentrated well pads, there is less of a possibility that operators will continue to drill in that area.
The operating company drilling the well plays a huge role in a deal. Typically mineral and non-op companies have experience with operators in their areas of interest and know how they run their business. Some operators have tried and true methods they deploy across the field and are very reputable. However, some operators can prove to be a higher risk to work with than others. Operators can have poor reputations for various reasons such as: paying out royalties slow or not at all, overpaying for drilling and production services, having poor safety records, filing for Chapter 11 bankruptcy, etc. Companies interested in your asset may not give you an offer if they don't like dealing with the operator.
Oil and gas wells are a depreciating asset. From the first day an oil or gas well starts producing, the production levels will decline. All basins are different, but typically after 6 months, the well does not produce as much as it did on Day 1. If the well is already drilled, we can see production history of that well to see where it is in the decline curve. If the wells haven't been drilled yet, investigating the surrounding areas to see performance of neighboring or similar wells can help determine performance.
You land location in relation to the basin is one of the most important factors in determining value. In fact, your land can be valued very differently from your neighbor's land who is just a few miles away.
Basin and Formation
Why would my working interest in Texas payout differently than my property in North Dakota? All basins produce differently. For example, the San Juan Basin in New Mexico or the Piceance Basin in western Colorado only produce gas. The Williston Basin in North Dakota is oil-rich and has different payout schedules and production costs. In addition, different formations within the basins can produce differently.