Previous - Slide 22 - Next

IV b.  Second Example -- Illustration of bad results from Rule of Capture

But that is not the only bad scenario.  Here is the beginning of a second example.

Lets go back to the point where Ms. Southwest had drilled her second well.

Suppose well #2 was a productive well.  But it was not a great well.  Unlike well #2 in our first example, it will make back its costs and a little more, but not a whole lot more.

When Mr. Northwest, Mr. Northeast, or Ms. Southeast try to have their offset wells drilled, they may not get to do so.

Because well #2 is already there draining gas out of that portion of the pool, there will not be as much gas left in that part of the pool to drain out with their new offset wells if those offset wells are drilled.  And if those offset wells were drilled, they would still be competing with #2 for the gas remaining.

So if well #2 is not a great producer, any offset wells may not produce enough money perhaps even to pay for themselves.

So if Mr. Northwest, Mr. Northeast, or Ms. Southeast try to find a lessee/operator who would  use the lessee/operator’s own money to drill the well, the lessee/operator will see that he cannot make a profit, and he will not invest his money.  If they try to borrow money themselves to hire a drilling rig, no knowledgeable financier will get involved.  If they have money, they could use their own money, and there are people who own and run drilling rigs who would take it, but it would not be a good investment.