Square One, Part 2 - Preparations for Drilling Begin with Highly Detailed Leasing Process

In days gone by, the common sentiment in the oil patch when prices rose was “Drill, baby, drill!” Not only have times changed, but even back when the phrase was made famous by former Republican Vice-Presidential nominee Sarah Palin in 2008 it vastly oversimplified and understated the efforts required to secure new production. It’s easy to overlook how intensive (and time-consuming) the operation at a well site is before even being able to extract any of those precious crude oil, natural gas and NGL molecules found beneath our feet. Prior to hydrocarbon production, well sites must be obtained, tested and developed by exploration and production companies trying to determine their chances of making a reasonable return on their investment. In today’s RBN blog, we take a step-by-step look at the leasing process.

We recently started a series of “101”-style blogs designed to provide a better understanding of the journey those all-important hydrocarbon molecules take from their native formations far underground to their respective downstream markets. In Part 1, we started with the basics of the upstream portion of the oil and gas value chain, from what the sector does to the types of companies that operate in that space. Today, we turn our attention to leasing and the critical role it plays in the exploration process.

Before the Shale Era, E&Ps would explore first to determine the areas that might have the potential to be developed. They would utilize seismic surveys (a topic for a future blog) and other technologies to determine what might be down there, and then if things looked good, drill exploratory wells. For most of the industry’s history, producers were drilling vertical wells into capped sandstones, looking for traps (red arrows in Figure 1 below), and it was hit or miss as to whether they would find commercially valuable hydrocarbons or come up with a dry hole — so it was drill first, then lease. Only after mapping the formations and drilling the exploratory wells would leasing start in earnest.

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