Oil and Gas Mineral Resources in Florida’s Future · South Florida Water Management District ......

Oil & Gas Mineral Resources in Florida’s Future

© Copyright 2002 – Lampl Herbert Consultants, Inc.

South Florida Water Management DistrictCurrent Appraisal Issues in Florida

May 16–17, 2002

ADAM’S MARK HOTELORLANDO, FLORIDA

Presented by:Thomas A. Herbert, Ph.D., P.G.

LAMPLHERBERTLAMPLHERBERT

Tallahassee, Florida

• Professional Geologist with 36 years experience

• First chairman of the Florida PG licensing board

• Involved in the majority of oil exploration programs in Florida since 1979

• Keen interest in minerals asset valuation



Background and Experience Thomas A. Herbert, Ph.D., P.G.

Part I: Oil & Gas Mineral Rights

Part II: The Geologic Setting and Background

Part III: Oil Company Perspectives

Part IV: Likely Scenarios Appraisers Might See

Part V: Questions and Answers



What are we doing today?

Part I:

Oil & Gas Mineral Rights



• Assets are “out of sight”

• Evaluations involve technical and scientific understanding of the area and the subject property – you may need expert help

• Institutional knowledge is critical – not unlike appraisal business

• Perceptions of value range widely depending upon the perceptions of parties involved



Valuation of Oil & Gas Minerals: Some Key Points

• Valuation of mineral assets may be costly

• May be expensive to acquire assets

• Land managers and appraisers may be called in to plan acquisition strategies

• Mineral reservations might be an option for some projects

• Simple review of situation may be all that’s needed to clear O&G minerals issues



Tips for Land Managers and Appraisers Regarding Minerals

• Exploration and Production Industry generally not well known or understood in the state

• Florida is an oil producing state; in 1978 ranked 6th in USA

• Excellent potential for additional discoveries

• 70 years of exploration activities have created many interesting O&G minerals ownership scenarios



Roots of Oil & Gas Minerals Issues in Florida

• Production of O&G has created true wealth

• Exploration companies and discoveries have created “land rushes”

• Fringe players have complicated ownership of surface and minerals

• Speculators have created unreasonable expectations

• Large land holdings have strategic advantages for owners LAMPLHERBERT

LAMPLHERBERT© Copyright 2002 – Lampl Herbert Consultants, Inc.

Oil & Gas Exploration Issues Segue to Potential Valuation Problems

• Urban development continues to move into oil prone areas

• International investors buying Florida

• Oil exploration often not seriously considered in land planning or land use regulations

• Environmental land acquisitions occurring in prospective oil exploration areas

• Regulatory prohibitions/constraints making resource buyouts an emerging scenario LAMPLHERBERT


Why are Oil & Gas Mineral Rights a Florida Issue?

• Fee Interest – surface as well as subsurface rights to all minerals

• Mineral Interest – subsurface rights for oil and gas and solid minerals

• O&G Minerals – Petroleum only

• O&G Minerals Restricted – Restricted by depth or field



Review of Types Mineral/Land Resource Interests

• Surface owner

• Lessee

• Mineral owner of severed interests

• Bona fide oil exploration company

• Speculators



Who Has Control?

• With established production value of minerals would be high

• Value based on revenue from royalty stream from production

• O&G rights probably too expensive to acquire



Mineral Valuation in Producing Fields



Florida Annual Crude Oil Production1943 to 2002

0

5

10

15

20

25

30

35

40

45

50

1943 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998

Mil

lio

n B

arr

els

Pe

r Y

ea

r 197848 Million

Barrels of Oil

1943 1960 20021980

Total State Production

South Florida

North Florida

1970 Jay Field Discovery

1943Sunniland Discovery

Year

• Within oil trends undrilled acreage may have extraordinary value that should be considered

• “Closeology” to existing production is an important factor

• Leasing history important

• Plans by exploration companies critical

• Size of subject property important



Mineral Valuation in Oil & Gas Prone Areas

• The issues need to be addressed and handled fairly among all parties

• Issues over minerals valuations can be an impediment to land acquisitions for environmental projects

• Precedents may be important



Why Are Oil & Gas Minerals Important?



Petit Bois Island



Part II:

The Geologic Setting and Background

• Accumulations of petroleum hydrocarbons in a trap or reservoir below land surface

• Map view of the extent of the reservoir identifies subsurface owners who may share in potential recovery thereby establishing mineral asset value



Oil & Gas Reservoirs:Geologic Targets of Opportunity

• Structural trap or hill

• Impervious seal

• Porosity in the hill

• Source of hydrocarbons

• Time and temperature; Nature’s crock pot



A Hill Under the Ground: Oil & Gas Reservoir



1,200 Acre Field with 15 Wells

123

10 11 12

131415

1. Smackover Trend

2. Sunniland Trend

3. Rubble Zone Trend

4. Offshore South Florida Basin

5. Destin Dome

6. Apalachicola Basin



Florida Oil & Gas Areas

1

5

6

4

23

• A few shallow wells drilled before 1920

• By 1920 Florida was a target

• Governor and Cabinet offered a $50,000 prize in the 1930s

• Sunniland field discovered in 1943



History of Oil Exploration 1920 to 1945

Humble Oil and Refining CompanyPhotographer : Murray, J. A. 1943

• Major oil companies begin leasing private lands in 1946-1947

• State lands and state waters leased

• Large landowners targeted

• O&G minerals severed by purchases

• Promoters complicate mineral ownership



Sunniland Oil Starts the Rush

• Early wells were drilled with wooden derricks and steam engines

• By the 1940s rotary drilling to 12,000’ was possible

• In 1970s directional drilling of a mile of horizontal distance was possible

• 21st century technology allows horizontal wells to reach large areas from one location



Role of Drilling and Production Technology



Significant Field Discoveries

1. Sunniland (1943)

2. 40 Mile Bend Field (1953)

3. Felda Field (1966)

4. Jay Field (1970)

5. Bear Island (1972)

6. Blackjack Creek (1972)

7. Raccoon Point (1976)

790 million barrels since 1943

1

2

3

4

5

6

7



• In Santa Rosa and Escambia Counties since 1970 more than $12 billion in revenue

• $1.5 billion in royalties to mineral owners

• In Collier, Lee, Hendry Counties since 1943 more than $1.6 billion in revenue

• $200 million in royalties to mineral owners

• Chevron offshore project $14 billion



Creation of Value: The Prize



• Chevron offshore natural gas

• Coastal Petroleum in Florida state waters

• South Florida Basin

• All of these exploration areas are subjects of buyback of leases



Offshore Controversies



Chevron Coastal

Petroleum

South Florida Basin

• Protection through Acquisition

• Panther habitat

• Everglades watershed

• Big Cypress watershed

• Florida Bay



Environmental Issues and South Florida Operations:





New Exploration Trends

LeeHendry Collier

EscambiaSanta Rosa Okaloosa

FranklinGulf



Part III:

Oil Company Perspectives

• Risk and Reward in the Corporate Boardroom

• Landowner Roles

• Dealing with the O&G Regulatory System

• Dealing with Environmental Lands Purchases




• Oil field production is a complex industrial operation from a business standpoint

• Producing properties have a revenue stream from sales of O&G

• Field operator pays royalties to mineral owner(s) based on lease agreement

• Other mineral interests may share revenues and expenses




• Entity producing the field bears costs of exploration and production

• Production needs to be large to cover costs including many dry holes

• High maintenance costs




• O&G “mineral rights” are usually leased from owner or another lessee

• In a field situation there may be one mineral owner or hundreds

• Assembling the leases for acreage can be a daunting task

• The exploration company must acquire an oil and gas minerals interest in the property to obtain permits to drill from the state



Acquisition of Oil & Gas Rights

• Acquire control of prospective acreage before exploration activities start

• Control is usually in the form of options, leases or subleases on the rights to drill and produce

• Give away as little of the deal as possible to landowners or other interests

• Move as rapidly as possible to evaluate the acreage



Generic Exploration Strategy

• Timing is critical in leasing and in exploration activities

• Oil companies tend to move quickly to acquire large areas of prospective acreage called a “land play”

• Once in control, exploration can take place at the pace governed by available capital and regulatory permitting



Action!

• Lease usually requires a cash bonus ($20-$50/ acre)

• Annual rental in dollars per acre ($2-5/year)

• 1/8 to 1/4 of the value of production as a royalty with no load for costs or expenses

• Other sub lessees may require additional payments and fractional royalties (overrides)



Financial Side for Acquisition of Oil & Gas Rights

• O&G law allows companies to drill if 75% of owners consent to exploration and production within a drilling unit

• Dissenting owners are “carried into the deal” as working interest owners and production costs are deducted before payout

• High percentage of carried interest cools exploration excitement



Dissenting Mineral Owners

• Lots of front end time and money to acquire mineral acreage

• Large front end costs for geophysical testing

• Drilling cost for test well is $1.5 to $2.5 million

• In Florida about one wildcat well in ten has been a field discovery (10% success)

• Level of expenditures for exploration are a measure of industry’s interest in an area



Bottom Line for Oil Company

• Small landowners collect rents and any royalties on production – can be significant in high production areas

• Knowledgeable landowners in the “catbird seat”

• Large landowners may take role in the exploration process to help improve timing of investments and returns

• Proximity to oil production enhances potential values of the O&G mineral rights



Landowner Perspective



State’s Role: Protection of Mineral Owner Rights• Establishes well spacing

• Environmental rules

• Prohibits wasteful operations

• Monitors production

• FDEP – Oil and gas section Florida Geological Survey

• FDEP – Wetlands

• WMD – Site permits

• Local Permits – Land use, construction

• Federal – Wetlands, wildlife

• Surface Owner – Access permission/conditions LAMPLHERBERT


Oil & Gas Regulatory System

• In NW Florida and other prospective areas permitting of operations is straightforward

• South Florida, is difficult but not impossible

• It is wrong to think that environmental permitting issues will solve minerals valuation situations



Permitting Success

• More than 50 years of environmental land purchases

– Everglades National Park

– Big Cypress Preserve

– Panther preserves

– EAA purchases

– Everglades protection areas



Environmental Lands Purchases



Part IV:

Likely Scenarios Appraisers Might See

• Factual review of mineral ownership situation

• Each project will have a unique set of circumstances that must be evaluated



Each Project Stands Alone

• Land records reflect a land play from a bygone era (1947-1960)

• Minerals severed and sold/leased in fractional units

• Minerals ownership “lost” in a maze of estates

• New owners require reasonably clear title and elimination of impediments to development



Relict “Plays”

• Review of oil & gas potential for area

– Leasing history

– Interest by oil companies

– Production in area

• Review of land use and access issues

• Professional opinion letter



Resolution Strategy for Relict Plays

• Landowner believes that there is unproduced oil beneath property

• Grandpa said that drillers capped a well in the 1940s

• No technical or scientific basis for claims



Unreasonable Expectations

• Retain a PG or PE with petroleum experience to review situation

• Review landowners information and records

• Review of oil & gas potential for area– Interest by oil companies

– Production in area

• Consultation with owner’s representative

• Professional opinion letterLAMPLHERBERTLAMPLHERBERT


Resolution Strategy for Unreasonable Expectations

• Oil & gas minerals fragmented by land development schemes

• A nightmare of fractional interests to evaluate (thousands of entities may be involved)

• Ownership usually resides in estates and in overseas interests



Fragmented Mineral Ownership

• Retain a PG, PE, or leasing expert with petroleum experience to review situation

• Review information and records

• Consult with owner’s expert or representative

• Obtain professional opinion letter

• Negotiate purchase of a portion of minerals in each potential drilling unit to remove incentives for exploration



Strategies for Resolving Fragmented Interests

• Assume knowledgeable owner

• Retain a PG to review situation

• Review landowners information and records

• Review of oil & gas potential for area– Leasing history– Interest by oil companies– Production in area



Large Parcel Acquisition

• Consult with owner’s expert/representative

• Develop valuation scenarios

• Professional report



Large Parcel Acquisition

Part V:

Questions and Answers



End of presentation



Date post:	20-Apr-2018
Category:	Documents
Upload:	doandung
View:	216 times
Download:	4 times

Oil and Gas Mineral Resources in Florida’s Future · South Florida Water Management District ......

Documents