Opportunities Of The Appalachian Independent Oil And Gas Operator
Authors: Gehr James B. 
Published: December 2007

Introduction

The basic success of an Appalachian independent oil and gas operator is dependent upon the availability of good leases and drill sites which lead to productive reservoirs. Prospects are available through utility companies, lease brokers, and other independents. The results of drilling must live up to the expectations of the investor. Investment capital may be raised through broker-type groups, individual sales or more typically through direct offerings by the operator. Recently the offerings are commonly structured as limited partnerships with the operator as General Partner. The prospectus is prepared to meet SEC registration requirements; however, are not usually registered. There are many areas in the Appalachian Basin which have great potential for exploration and development drilling. With reasonable incentives to increase drilling, the independent will find and develop significant volumes of much needed oil and natural gas.

PRODUCT PRODUCT The "product" which is the basis of the Appalachian independent oil and gas operator opportunity, is the lease or well location. These leases can be categorized as exploration or development prospects and are available through several different options:(1) Farmouts from utilities or major companies are generally available. Since these larger companies control an estimated 85 percent of the leased acreage in the Appalachian Basin, it is probably most feasible to approach one of these majors to arrange for an assignment of drill sites. The utility/pipeline companies regularly require that they have a call on the natural gas produced and a time limit as to completion of the drilling of these locations. The major oil and gas companies often will require up to a 1/16th overriding royalty.(2) Leases through brokers who usually accumulate acreage in blocks, charge in the range of $5 to $10 per acre and may add an override of possibly 1/32nd.(3) The independent operator may do his own leasing to accumulate the prospects for a drilling program. This is a must to protect him in years to come for continued operations. In every case the leases are assigned or sold without warranty of title. The operator must have an attorney run a title check on each lease to verify that the lessee docks in fact have the oil and gas rights. This is commonly called "clearing title."The acquisition of good prospects for a drilling program is extremely important for success in this business. It is the basic commodity that can make or break the operator.

TYPE OF PRODUCT

Development wells are the most common type drilling program presented by the typical independent operator. A development presented by the typical independent operator. A development well is a well directly offsetting actual proven production. Occasionally in a development well program an operator may include several "stepout" wells. The definition of stepout, that is generally accepted, is a location within one mile of existing production. Exploration programs are not as prevalent as development well programs. It is a necessary incentive to control larger blocks of acreage surrounding an exploration prospect. Due to the strategraphic reservoir development in the Appalachian Area, the shallow exploration prospects are mainly extensions of trends and also deepening of old shallow oil and gas fields.