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Posted: 4/17/2008 11:42:38 AM EDT
I have heard many well informed people talking about how the oil bubble is going to burst.  This is something I don't know much about.  The reason I am asking is because I am with a private group that owns the mineral rights to some land located in the paradox basin around the town of Green River Utah.  Merril Lynch, one of the largest gas and oil brokers in the world has come to us and wants to broker our deal for us when we sell it.  They have done a 50 page due diligence packet on our land and they say it is worth X amount, but this is where I am confused.  They base the dollar value of our land on the price of oil only being 49 dollars a barrel.  Merril Lynch obviously knows the oil business, would anyone know why they would base the project's value on 49 dollar oil?  Do they know, or think they know something that might cause oil to plummet like that?
Link Posted: 4/17/2008 11:45:41 AM EDT
They might be figuring on the cost to get to that oil.  Figure in that it might not be light sweet crude but oil shale or some other type of oil.
Link Posted: 4/17/2008 11:46:14 AM EDT
Link Posted: 4/17/2008 12:01:53 PM EDT
I need more input on this!!
Link Posted: 4/17/2008 12:06:08 PM EDT
I have heard most oil companies don't want to go after any oil that costs more than $35-40 to produce.  $47 might be a good deal.  
Link Posted: 4/17/2008 12:14:57 PM EDT
Why would you sell the mineral rights?  Why not lease them, like everyone else.  
Link Posted: 4/17/2008 12:19:58 PM EDT
There is no oil bubble to burst.  We use X amount of oil every day, and that number can inflate to Y when consumers are also using a lot.  The amount of oil we use will always fluctuate between X and Y, and this is unlikely to change anytime soon.

Oil prices are not subject to supply and demand.

Also, they are probably low balling you, no reason to start at the top in a negotiation like that.
Link Posted: 4/17/2008 12:21:09 PM EDT
height=8
Originally Posted By Anthony346:
There is no oil bubble to burst.  We use X amount of oil every day, and that number can inflate to Y when consumers are also using a lot.  The amount of oil we use will always fluctuate between X and Y, and this is unlikely to change anytime soon.

Oil prices are not subject to supply and demand.

Also, they are probably low balling you, no reason to start at the top in a negotiation like that.



everything is subject to supply and demand....



EVERYTHING
Link Posted: 4/17/2008 12:22:03 PM EDT

Originally Posted By 338winmag:
Why would you sell the mineral rights?  Why not lease them, like everyone else.  


Maybe I didn't word it right.  We don't own the land, we have leased the mineral rights from the various land owners, state, federal, and private land owners.  We plan on drilling 10 to 15 wells to prove the rights we own, then sell the rights off to a larger company.  I was hoping you would chime in, you seem to know what you are talking about on this subject.
Link Posted: 4/17/2008 12:23:31 PM EDT
The price will come down.  It has before, it will again.  Think about this, if it becomes so expensive that people/govt will push hard for an alternative, and if that alternative is successful, then that expensive oil will be worth a lot less when the demand drops or when it can be forcast to drop.
Link Posted: 4/17/2008 12:26:20 PM EDT

Originally Posted By Anthony346:
There is no oil bubble to burst.  We use X amount of oil every day, and that number can inflate to Y when consumers are also using a lot.  The amount of oil we use will always fluctuate between X and Y, and this is unlikely to change anytime soon.

Oil prices are not subject to supply and demand.

Also, they are probably low balling you, no reason to start at the top in a negotiation like that.


That is pretty much what I was thinking.  Take the housing bubble of any of those crazy markets that crashed recently.  The demand for homes was high, so they kept building them until the supply far surpassed the demand, then the crash.  I just don't see that happening with oil.  Thats why I am curious as to why Merril Lynch would base the value on 49 dollar oil.
Link Posted: 4/17/2008 12:28:51 PM EDT

Originally Posted By blackx:
The price will come down.  It has before, it will again.  Think about this, if it becomes so expensive that people/govt will push hard for an alternative, and if that alternative is successful, then that expensive oil will be worth a lot less when the demand drops or when it can be forcast to drop.


That is the only way I could think of for oil to get "cheap" again.  In Merril's due diligence they plan on selling the deal in three years, which certainly wouldn't be enough time for alternative fuels to take effect.
Link Posted: 4/17/2008 12:32:12 PM EDT
I should do the American Public a favor and invest in this oil company.

As soon as I did, it would be gauranteed for oil to plunge to $20.00 per barrel overnight as all my other investments have over the years.

Link Posted: 4/17/2008 12:33:40 PM EDT

Originally Posted By blackx:
The price will come down.  It has before, it will again.  Think about this, if it becomes so expensive that people/govt will push hard for an alternative, and if that alternative is successful, then that expensive oil will be worth a lot less when the demand drops or when it can be forcast to drop.


+1.
If people actually replace their trucks with Civics & Scooters, demand will fall. It has too.

And Jimmy Carter told us in the 70's we would never have cheap oil again, lol. We have it now & then.
Link Posted: 4/17/2008 12:35:43 PM EDT

Originally Posted By JHMC79:
I should do the American Public a favor and invest in this oil company.

As soon as I did, it would be gauranteed for oil to plunge to $20.00 per barrel overnight as all my other investments have over the years.



+1 I invested in a small oil company & when oil shot up to $70, I was very happy. Then I found out my company had sold the next three years of their oil production for $40!!

I bought a moron oil company!
Link Posted: 4/17/2008 12:37:01 PM EDT

Originally Posted By ModernDayIsraelite:

Originally Posted By 338winmag:
Why would you sell the mineral rights?  Why not lease them, like everyone else.  


Maybe I didn't word it right.  We don't own the land, we have leased the mineral rights from the various land owners, state, federal, and private land owners.  We plan on drilling 10 to 15 wells to prove the rights we own, then sell the rights off to a larger company.  I was hoping you would chime in, you seem to know what you are talking about on this subject.


I will tell you right up front, I am no expert in this area, other than the fact that I own land and the mineral rights under that land.  Firebugfab knows more than I do about this subject, but I will try.  There are also others on here that have more expertise in the actual production area than me.

If you have bought up leases in an area, and plan on drilling some test wells to prove production, wouldn't you want to sell "shares" in individual wells as they are drilled to spread the risk?  Wouldn't your group want to keep say, 20-30% of the well, and then sell off the rest of it to investors?  All or most of the work done in the oilfield is done by contractors, all you need is a petro engineer on staff to "supervise" the work.  
Link Posted: 4/17/2008 12:39:45 PM EDT
you need to get a lawyer who specializes in oil and mineral rights--now!
Link Posted: 4/17/2008 12:42:26 PM EDT

Originally Posted By ModernDayIsraelite:

Originally Posted By blackx:
The price will come down.  It has before, it will again.  Think about this, if it becomes so expensive that people/govt will push hard for an alternative, and if that alternative is successful, then that expensive oil will be worth a lot less when the demand drops or when it can be forcast to drop.


That is the only way I could think of for oil to get "cheap" again.  In Merril's due diligence they plan on selling the deal in three years, which certainly wouldn't be enough time for alternative fuels to take effect.



When they are talking about the $47 costs, they are talking about lifting costs.  This is the cost per barrel to get the stuff out of the ground.  Not the selling price.  

If the lifting costs are 47 and the selling price is 112. and the well is producing 10,000 barrel per day.  The math is  (112-47) *10,000 * 365 = $237,250,000.00 less taxes and other costs per year.  The numbers are huge.  
Link Posted: 4/17/2008 1:06:56 PM EDT

Originally Posted By 338winmag:

Originally Posted By ModernDayIsraelite:

Originally Posted By blackx:
The price will come down.  It has before, it will again.  Think about this, if it becomes so expensive that people/govt will push hard for an alternative, and if that alternative is successful, then that expensive oil will be worth a lot less when the demand drops or when it can be forcast to drop.


That is the only way I could think of for oil to get "cheap" again.  In Merril's due diligence they plan on selling the deal in three years, which certainly wouldn't be enough time for alternative fuels to take effect.



When they are talking about the $47 costs, they are talking about lifting costs.  This is the cost per barrel to get the stuff out of the ground.  Not the selling price.  

If the lifting costs are 47 and the selling price is 112. and the well is producing 10,000 barrel per day.  The math is  (112-47) *10,000 * 365 = $237,250,000.00 less taxes and other costs per year.  The numbers are huge.  



OOOOhhh.  That makes sense,  I couldn't for the life of me figure that out, thank you.  I am really excited about this deal, there are other companies out there with drilled wells that have had great shows.  These wells will do a lot of natural gas, Delta Petroleum will have the pipeline ran out there by the end of Q3 and then its off to the races.  There is over 900 feet of pay out there, it should be huge.  We have around 23,000 acres or so.  Merril places the after expense and taxes values of our land at 1.8 billion dollars.
Link Posted: 4/17/2008 1:15:40 PM EDT
But you need to make sure you have the selling price for the right oil when doing calucations. Utah most likely isnt West Texas Intermediate nor comparable to Brent Crude so you will get a lower selling price
Link Posted: 4/17/2008 1:18:32 PM EDT

Originally Posted By Texaspyro21:
But you need to make sure you have the selling price for the right oil when doing calucations. Utah most likely isnt West Texas Intermediate nor comparable to Brent Crude so you will get a lower selling price


Good point, it was Merril Lynch who did the calculations so I would assume they are correct.  Also, from what I understand the oil is mostly Condensate which is better quality?
Link Posted: 4/17/2008 1:25:13 PM EDT
[Last Edit: 4/17/2008 1:26:10 PM EDT by Texaspyro21]

Originally Posted By ModernDayIsraelite:

Originally Posted By Texaspyro21:
But you need to make sure you have the selling price for the right oil when doing calucations. Utah most likely isnt West Texas Intermediate nor comparable to Brent Crude so you will get a lower selling price


Good point, it was Merril Lynch who did the calculations so I would assume they are correct.  Also, from what I understand the oil is mostly Condensate which is better quality?

If you got Condensate, then you boys got natural gas which is a whole different ball game on pricing for extraction and selling

ETA- Never trust someone else to do the numbers. Get your own guy to look over them and make sure they check out
Link Posted: 4/17/2008 1:27:16 PM EDT
I understand your excitement.  Oil has been good to me too.  Everyone that complains about nasty old oil companies, never had to just go to the mail box and pick up a check.  What a great feeling.
Link Posted: 4/17/2008 1:37:42 PM EDT

Originally Posted By 338winmag:
I understand your excitement.  Oil has been good to me too.  Everyone that complains about nasty old oil companies, never had to just go to the mail box and pick up a check.  What a great feeling.


Yes it is a good feeling, I get checks every month from 2 other projects, so I know how you feel.
Link Posted: 4/17/2008 1:57:11 PM EDT

Originally Posted By blackx:
The price will come down.  It has before, it will again.  Think about this, if it becomes so expensive that people/govt will push hard for an alternative, and if that alternative is successful, then that expensive oil will be worth a lot less when the demand drops or when it can be forcast to drop.


Oil is still cheaper here than in the rest of the world. Thinking that we are somewhat special or differant is what got us into this mess to begin with. I had predicted years ago when fuel effeciant cars seemed to dissapear that it would come back to bite us in the ass. When people talk about riding their motorcycle to save on gas and that motorcycle only gets 35 miles to the gallon it's obvious the message isn't getting through.

It's pretty black and white with no gray areas, we can either use less oil, or produce our own oil. So far the alternatives (electric and hybrid vehicles) aren't any more cost effective than vehicles that have already been made. My last 2 cars got 38 - 40 mpg! The rest of the world manages to build vehicles with gas mileage that or better but people don't want to drive tiny wind up cars.

I don't either but relying on outside sources (or enemies of the state) for fuel at the expense of the entire economy isn't a smart choice either.
Link Posted: 4/17/2008 2:15:33 PM EDT
Will the oil bubble burst?

Yup. Always has, probably always will, tough the post-burst-bubble prices will be higher than the lows of a few years ago.

The high price of oil is increasing the demand for more oil, increasing the demand for exploration and more production, increasing the financial viability of wells, fields and prospects that just a few years ago were out of reach.

We'll see more oil soon.

We'll see lower prices soon.

Problem is, when the oil starts flowing and the price stops dropping, will the Demos start raising taxes on it again?


Link Posted: 4/17/2008 2:16:53 PM EDT
[Last Edit: 4/17/2008 2:17:13 PM EDT by DragoMuseveni]

Originally Posted By joe-bananas:

Problem is, when the oil starts flowing and the price stops dropping, will the Demos start raising taxes on it again?




Of course they will. Hell they want to raise taxes on oil/gasoline now.


EDIT: All your page 2 are belong to me.
Link Posted: 4/17/2008 2:18:13 PM EDT

Originally Posted By Anthony346:
There is no oil bubble to burst.  We use X amount of oil every day, and that number can inflate to Y when consumers are also using a lot.  The amount of oil we use will always fluctuate between X and Y, and this is unlikely to change anytime soon.

Oil prices are not subject to supply and demand.

Also, they are probably low balling you, no reason to start at the top in a negotiation like that.


That's right, and I am not subject to gravity!
Link Posted: 4/17/2008 2:20:31 PM EDT
Keep the mineral rights, you should get a 1/8 overiding royalty interest.  You put up no money and get 1/8 of the gross revinue.

When you run the economics on a prospect you have to have values for various parameters, $/bbl for oil and $/mcf for gas are but two of the parameters.  The price entered in the computation will be a conservative one because people using conservative parameters don't go broke.

In the past the oil business has always gone through cycles of boom and bust.  Always.

Today the situation is somewhat different, strong economic growth with the accompanying strong demand for fossil fuels.........for a bit under half the worlds population is a new thing.  It is likely that the economies of China and India will undergo their own swings up and down just like the rest of the world.  If so that will drive oil into boom and bust cycles somewhat lagging behind the economic trends of those huge populations.  Today the economy of the whole world seems to go through up and down cycles, that would magnify the effect.

One thing is certain, when the oil business has a lot of money they spend it on exploration and one of the products of that exploration will be a future glut of oil that drives down oil prices.  When oil prices are low exploration is cut back leading to the next shortfall of oil production.  Thus it has been, thus it will be.

Back to $49/bbl, anybody who bases their economics on $100/bbl is going to go broke and lose the money they borrowed from the pension funds and insurance companies.  Those funds are very unlikely to invest in any company who uses very high product prices in their economics anyway.
Link Posted: 4/17/2008 2:20:31 PM EDT

Originally Posted By DragoMuseveni:

Originally Posted By joe-bananas:

Problem is, when the oil starts flowing and the price stops dropping, will the Demos start raising taxes on it again?




Of course they will. Hell they want to raise taxes on oil/gasoline now.


EDIT: All your page 2 are belong to me.


AFAIK, the federal gas tax is a flat amount per gallon.  Too much conservation costs them money, but if the price goes down, consumption will go up, thereby sending more money to Washington.
Link Posted: 4/17/2008 2:21:30 PM EDT

Originally Posted By Torf:

Originally Posted By Anthony346:
There is no oil bubble to burst.  We use X amount of oil every day, and that number can inflate to Y when consumers are also using a lot.  The amount of oil we use will always fluctuate between X and Y, and this is unlikely to change anytime soon.

Oil prices are not subject to supply and demand.

Also, they are probably low balling you, no reason to start at the top in a negotiation like that.


That's right, and I am not subject to gravity!


He's right. Oil prices are subject to the laws of emotional speculators who risk nothing.

If they had actually had to take possesion of a $120 barrel of oil things would be a whole lot different for the better.
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