http://www.mcclatchydc.com/2012/04/03/143956/small-oil-producers-struggle-to.html
There is an interesting article in the papers Sunday - reprint of a McClatchy Newspaper article linked above.
The gist is that small operators who were drilling vertical wells "on the cheap" and paying low dollars per acre and 1/8 royalties cannot obtain land to drill because a major speculative shale oil play is underway. They also are threatened with lawsuits from landowners who think they've been cheated by these low paying operators.
There is an element of unfairness to blame the small operator as they simply cannot afford the high prices and generally are drilling with their own internally generated money or money raised from other small oil investors. Hedge funds and speculators are funding much of the land play on the shale plays looking for big payoffs. And that play is far from "proven". If it fails, then they will pack up and leave but not before they have permanently altered the perspective of royalty owners.
Again, it is not economic to drill small vertical wells and pay $1000 per acre plus 20% royalties. A section of land would cost the lessor $640,000 and for the typical 2000' vertical oil test drilled on air with a truck mounted rig, that is easily more money than 2 wells would cost to drill.
Landowners need to differentiate between the two and recognize that the economics are different. It's no use to accuse the small operator of "cheating" someone. I saw this in the Fayetteville play. A old geologist, deceased now, had worked on a prospect for decades, and the prospect was nothing to do with the Fayetteville. It was and remains highly speculative. I was shown the prospect in 1991 or so. They leased some land in far E. Arkansas for $10 or so per acre. When attempting to re-lease as the shale play started, they were accused of being crooks who had swindled these folks all those years. Ultimately, some people did lease for "big bucks" in Lee, Monroe, and Phillips Counties, but all that went for naught as the shale drillers batted zero. None of the shale drillers remain interested in those counties.
The prospect remains. It is still highly speculative. The Texas Crude Co. that owns the leases cannot afford $400 an acre to keep the prospect alive. $10 an acre "ain't much" but it beats zero. And the speculative bubble experienced in the far east side of the state has popped. Now you are not even going to get the $10 if you hold out for more.
