The Golden Trend and the Junkyard Dog

All,

While the SCOOP and STACK receive most of the national press from bankers who love generalizations, trends, and acronyms, the venerable Golden Trend of Garvin County and McClain County has once again regained prominence.

The Golden Trend is roughly contained by a box constructed with Township 3N-4W in the lower left and Township 5N-3W in the upper right. The field was drilled beginning in late 1940s and has been productive in zones at many levels in the hydrocarbon column since that time. In 2015, production from the active wells totaled 2,853,809 barrels of oil and 41,493 mmcf of gas.

There have been three large trades in the field in the past two months. Rimrock Resource Operating (Tulsa) purchased the Merit Energy assets. Casillas Petroleum (Tulsa) purchased the Chesapeake Golden Trend package and is the undisclosed buyer of Continental Resources' "non-core" SCOOP assets which includes the Golden Trend leases.

With Merit and Casillas' entry into the play and the recent exploration activity by Citizen Energy II (Tulsa) and Eagle Exploration Production (Tulsa), the Golden Trend is poised to again become an active area of the Anadarko Basin.

Despite the obvious presence of hydrocarbons, nobody has promised these companies a rose garden. With as many as 10 vintage producing units in a single governmental section and with the base leases often dating back to the 1950s, land and title issues abound. Applications at the Oklahoma Corporation Commission have been protested and unresolved for months. With respondent lists numbering well over 500 parties, operators are bound to cross paths with those who would like to thwart progress and horizontal development.

It will be quite the melee for the four Tulsa operators as they scrap to put together horizontal units two acres at a time.

More to follow,

Berlin

Canadian County, Oklahoma SITREP

Oklahoma Oil and Gas Mineral Owners,

Because of its premier position in the heart of the STACK, leasing and transaction activity has not slowed in Canadian County, Oklahoma in 2016 despite the lower oil prices. To date in 2016, there have been 1014 oil and gas leases filed of record in El Reno by numerous operators and brokers. Because bonuses have remained competitive, the most important question that you should ask before leasing is how likely the lessee is to drill your lease during the primary term. The path to generational wealth is not periodic lease bonus payments, but the passive cash flows generated by regular royalty checks. The lessee should be a stable company focused in Oklahoma and not a fly-by-night lease flipper.

That being said, there have been only 8 companies this year who have been granted Pooling Orders in Canadian County by the Oklahoma Corporation Commission. For this discussion, Pooling Orders will be our metric to measure presence and activity level in Canadian County. The Companies and the number of Pooling Orders issued are detailed on the chart below.

Company	Number of Pooling Orders
Chaparral Energy, LLC	2
Cimarex Energy Co.	5
Citizen Energy II, LLC	6
Devon Energy Production Company	3
Felix Energy, LLC	5
Newfield Exploration Mid-Continent, Inc.	14
Payrock Energy, LLC	14
SCOOP Energy Company, LLC	8

The chart deserves a bit more analysis. Chaparral Energy, LLC declared bankruptcy which we have previously written about. SCOOP Energy Company, LLC is affiliated with American Energy Partners. As it was announced here in the Wall Street Journal, that all non-spun off entities will shut down. As SCOOP Energy Company has not been spun off, it is expected to shut down this summer. As an Oklahoma Oil and Gas Mineral Owner, I would not expect Chaparral or SCOOP to drill any wells in the foreseeable future.

Felix Energy was purchased by Devon Energy so Felix can also be struck from the list. Some in the industry say that Devon got out a bit over their skis with the purchase price and it might affect their ability to fully develop the acreage. Cimarex, the plodding tortoise of the group, moves extremely slowly. Their insistence on risk mitigation severely limits the amounts of exploratory drilling they are willing to conduct. It was well detailed in the 2016 company guidance presentation that they will focus on in-fill drilling in their East Cana field.

Newfield Exploration announced that it is closing its Tulsa, Oklahoma office this summer. With its staff mired in the morass of the Houston metro-plex, the company will be less competitive in the Mid-Continent region and will continually find excuses in the future to commit capital to other projects.

With those dominoes down, it appears that Payrock Energy, LLC and Citizen Energy II, LLC will be the development leaders going forward in Canadian County in 2016. Both appear to be accelerating their drilling to take advantage of the publicly traded companies hesitation in committing drilling dollars and other finite resources to the development of Canadian County, Oklahoma.

It's worth it as an Oklahoma Oil and Gas Mineral Rights owner to consider your lessee's plans for development before executing your oil and gas lease.

More to follow,

Berlin