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Largest Oil Discovery in America creates Jed Clampett effect in Oklahoma
Published by Stack Royalties on 10-24-17
To most, the Stack Play of Oklahoma sounds like a crazy acronym for something obscure and non relevant, but to the mineral right owners, it sounds more like cha-ching, cha-ching, cha-ching. Mineral right ownership is a lessor known form of oil wealth that usually is kept within a family for generations, and is never sold to everyday people. Mineral rights consists of owning the actual oil and gas beneath the ground also known as "reserves", and giving the ability to major oil and gas companies to drill and produce the oil and gas with a steep up front fee and up to 25% royalty from everything that comes out of the ground paid to the mineral owner.
Ever since the first Beverly Hillbillies episode where Jed Clampett fired his rifle into the ground and oil came spurting up, we saw how true hillbillies could strike it rich if they owned the right land with large amounts of oil and gas stored beneath. That land that Jed owned was only valuable because he owned the mineral rights to that land and subsequently owned all oil and gas that came with it. We witnessed such absurd wealth in the hands of hillbillies that it was amusing enough to run for nine seasons on CBS. Now a days, the Jed Clampett effect is being widely experienced in Northwest Oklahoma with mineral right owners laughing all the way to the bank.
What makes the Stack Play of Oklahoma so special, is the sheer volume of oil and gas coming out of the ground in a very fast way. This not only equates to astronomical monthly royalties being dished out to the mineral owners, but also makes it extremely lucrative for the companies drilling and producing at sub $45 dollars a barrel oil. Even though the downturn in oil and gas prices was devastating to the industry, sending oil prices tumbling from $106 dollars a barrel to as low as $26 dollars a barrel, the one good thing that came out of the carnage was finding great new areas that made economic sense. The Stack Play is the purest form of this rational way of thinking. Wells in this play are producing as high as 7,400 Barrels of oil equivalent per day (BOEPD) and producing over 70% Internal rates of return. Bank of America Merrill Lynch issued a report stating the Stack was by far the superior play in the country as stated below:
With more and more attention focusing in on the Stack from less impressive oil plays such as the Bakken and Eagleford shales, prices are starting to rise at a rapid clip with deal flow increasing daily. Private Equity has taken notice, pouring billions of dollars into the this play which they are betting on producing 10x or more returns for their early entrance. Recently, CNBC and Bloomberg business news paid a visit to the Stack to see what all the fuss was about.
Bloomberg Stack Video
CNBC Stack Video
With all oil and gas discoveries, mineral rights and lease values change constantly. As more and more activity starts to emerge in a new play, the land associated with the discovery rises in value. Just like in real estate, its all location, location, location. As you can see from the graph below, early entrance in any new shale discovery has tremendous upside. Only plays such as the Permian and Stack have sustained upside through difficult oil and gas pricing environments. This is solely due to the extremely low break even costs associated with the two plays with sub $50 a barrel oil.