Oil and Gas Acreage Questions

1. IF OIL COMPANIES WANT THESE LEASES, WHY DON’T THEY JUST BUY THEM AT THE AUCTIONS?

Oil companies do want these leases; each one we acquire is through bidding against their Landmen. We are, occasionally, outbid. It’s no secret that Exxon et al. have deeper pockets than we do. However, they also go to the auctions with budgets; and companies often exhaust most of their budgets in fierce bidding wars for ultra-pricey leases. This gives us an “opening” to outbid them and acquire other highly desirable top-quality leases for our clients. After the dust settles from the auction, we can then solicit and entertain purchase offers for these leases on our clients’ behalf.

2. MAY I ATTEND THE AUCTION AND BID MYSELF? WHY DO I NEED YOU?

Certainly you may do it yourself. All American citizens, or corporations in good standing, have the legal right to participate and bid for oil leases. However, the leases are offered with no indications of their value or geologic potential; the offering agencies do not concern themselves with this. The agencies simply offer parcels of land they control (described by township, range, section and subdivision), whether naked granite, studded with dry holes, or undrilled land bordering a new wildcat discovery. The bidding itself can be fast, aggressive and confusing. That’s where we come in, with our decades of Rocky Mountain oil patch experience and attendance at over one hundred of these auctions.

3. ISN'T THE “LOWER 48” A DRILLED-OUT, TAPPED-OUT, OVERMATURE PETROLEUM PROVINCE?

Our backyard is without a doubt some of the most heavily drilled real estate on earth. It’s safe to say that no giant field like East Texas or the Permian Basin remains to be discovered here. It’s also a fact that new oil and gas reserves are being found right here at home with new exploration technologies, such as 3-D seismic, and new geologic thinking. And, everevolving production technologies are rendering formerly “unconventional” reserves economic. When we began this business, the revolution in horizontal drilling and “fracking” did not exist. And, the U.S. is “home”; a lot of global oil supply is found in very nasty places that seem to be getting nastier every month.

4. IF I ACQUIRE A GOVERNMENT LEASE, IS IT MINE TO DO WITH AS I WISH?

No, it remains public land. You only acquire the subsurface rights to explore for, extract, and market any oil and gas underneath the acreage, and to make such improvements to the surface as are necessary for this. You may not build a cabin on the lease, or, if the surface is in the public domain, prevent access by the public for hunting, fishing, bird watching, etc. except to the actual drilling/producing facilities.

5. SO I CAN DRILL FOR OIL MYSELF?

Of course; this is the right you have purchased from the government through us. However, because of the enormous expense of a modern drilling operation, the idea in actual practice is to sell your rights to an oil company and let them do it – reserving for yourself a percentage royalty (usually 3- 5%) on all production from the lease.

6. IF I CHOOSE TO NOT SELL MY LEASE DOES IT EXPIRE?

Federal leases have up to ten years initial tenure to go into development. State leases have up to five years initial tenure to go into development. Because R C Michael Company purchases mineral rights acreage in close proximity to pending drilling applications and/or existing production, leases are typically assigned for development within twelve months. Override royalties on production continue being paid to you in perpetuity as long as production continues.

7. WHAT AM I OBLIGATING MYSELF TO WHEN I ACQUIRE A LEASE? ARE THERE PROPERTY TAXES ON THE PARCEL?

There are no “taxes” per se. RC Michael Company will pay any annual rental fees on your lease.

8. YOU GET A “CUT” OF THE PROCEEDS FROM THE LEASE, RIGHT?

Absolutely not; like all businesses, we have overhead, and we do make a profit. However, this is all taken care of out of the initial acquisition fees. We feel it is only fair that the client have full enjoyment of any and all profits from his lease ownership, and we take no percentage whatsoever of any proceeds or royalties from any client leases.

9. CAN I DEDUCT THE COST OF ACQUIRING A LEASE AS A BUSINESS EXPENSE ON MY TAXES?

We are not tax experts or advisors, but it is our understanding that lease acquisition expenses may be deducted against any income derived from future production on the lease. Consult your tax professional.

10. WILL YOU STICK AROUND AND HELP ME IF IT NEED IT?

You have the choice of administering and marketing the lease on your own, or throughout a third party. Or, if you choose, you may retain us to administer and market the lease on your behalf for a nominal, onetime fee.

11. WHAT ARE YOUR CREDENTIALS?

Our Principal, Robert C. Michael, is a licensed Professional Geologist with the State of California Board for Geologists and Geophysicists. He is a member in good standing of the Wyoming Geological Association, the Rocky Mountain Association of Geologists, the Coast Geological Society, the Pacific Section of the American Association of Petroleum Geologists and the American Institute of Professional Geologists. He graduated Cum Laude in Geology from Pomona College and did graduate work at Yale University and the University of Wyoming.

12. DO YOU OFFER A GUARANTEE?

We can only guarantee that we will work with all due diligence to get you the most favorable lease possible based on availability, competition, and funds available.

13. CAN I SPEAK WITH SOME OF YOUR SUCCESSFUL CLIENTS?

We are very sensitive to our clients’ personal and financial privacy, and would prefer not to prevail upon them for “testimonials”. Your business with us will be treated with the exact same discretion.

14. DO I NEED A LARGE (AT LEAST 640 ACRES) LEASE TO GET IN ON THE HORIZONTAL DRILLING BOOM?

No. A small lease of 40 or 80 acres, if strategically located in a region currently being horizontally drilled, can yield large royalty returns. While it is possible to get an undivided royalty on a horizontal well, oil companies frequently offer a pooled royalty to lease holders. For example, if a horizontal is drilled on a unit encompassing 320 acres (eight 40 acre plots) your pooled royalty would be one eighth if you own a 40 acre lease included in a unit of 320 acres. Your royalties will increase as additional wells are drilled on the unit even if they are not directly under your lease. Obviously, the larger lease you own (up to 640 acres), the larger will be your share of the pooled royalty from the drilling unit. (Note that the horizontal royalties are the TOTAL royalties on page 9 for a well in the drilling unit.)