The oil and gas industry has drastically shifted over the past 12 months, which has caused investors to search for the least expensive, but most productive methods to remain involved in the prolific shale trends throughout the United States. Currently, the most cost effective method of drilling in the Bakken today is wellbore interest. This type of ownership allows buyers to only acquire a single wellbore which means they will pay for one well at time and only the costs associated with that single well.
In today’s market, owners of net mineral acres in leases within the Bakken trend are seeking to sell their working interest positions, but only one well at a time. This unique opportunity gives an advantage to buyers since they will have up to a 1/3 less upfront costs to participate in drilling without having the lease burden. There are several wellbore interest scenarios when owners offer working interest:
The seller retains any producing wells already within the drilling unit
The seller retains the future ongoing development rights of the lease itself
The seller conveys only the rights to the wellbore for the current well proposed
The seller offers the wellbore rights at the AFE plus 10% with the 10% as a location fee
A buyer who purchases wellbore interest is provided an opportunity for immediate participation in a proposed Bakken well with the strongest and most technical savvy operators. Due to the lower crude oil prices, only the most efficient and cost effective operators are still drilling. This price downfall has weeded out the competition, leaving opportunities that are the cream of the crop. The lower prices have also caused well costs to go down by 10% – 15% and are continuing to be reduced, thus providing stronger economics for wellbore buyers.
Wellbore interest, like traditional drilling, provides investors with maximum tax deductions. Since there are no lease costs, up to 90% of the investment is applied to Intangible Deductions and first year deductions. This method of investing is also the quickest path to a deployment of invested funds and a return of invested funds via distributions.
The wells acquired from a wellbore interest are ready to drill and complete, and the division of interest is in place due to initial wells already being in pay status on the drilling unit. So, even though an investor will only receive revenue from the one well, there is a much lower cost in becoming involved in the prolific Bakken trend when purchasing wellbore interest.