We recently completed a “glass” getaway through the great state of Kansas and Colorado. By glass, I mean little contact with people as we viewed the countryside through the glass in our car. A visit to the Mining Museum in Leadville, Co. filled in many of the blanks as it relates to mineral and metal from Mother Earth. With the lyrics from the popular television show “The Beverly Hillbillies” streaming through our minds we were determined to become familiar with the lure of oil, wind and prairie as we travelled. The answer lies in money. Let’s have a look.
I am fascinated by Kansas topography, and amazed at how quickly we go from the ruggedness of Missouri to the gently rolling plains of Kansas. No sooner than you cross into Kansas, you begin to see small oil wells scattered about the countryside. Looks easy, drill a hole, install a pump and sell your black gold to the folks driving from well to well while you count your money. Actually, it is a tremendous risk. The average well produces 3.5 barrels of crude every 24 hours. Today, Brent crude is trading for 41.93 a barrel in these days of fracking and Keystone pipelines. The average well is 3,000 feet deep and costs about 500,000+ to drill and set up. If you hit a dry hole, a possibility even with todays seismic capabilities, you owe the drilling company 150,000. If your well is productive, you can expect, on average, 20 years production. You are advised to NEVER borrow money to speculate in this enterprise. On the other hand, some landowners have many wells churning out oil every day and are doing quite well. The size of the rig denotes the depth of the well and it’s productivity as compared to the averages. So, before you sink you inheritance in a well, consider the prospect of shoe sales at a discount shoe store, a real possibility if the well is or soon runs dry.
Wind is up next. All of us have driven by the “Wind Farms” some of which stretch for miles along the high plains. First, you need wind, at least 9 MPH to turn the turbines. Almost all of the turbines you see are owned by large investment conglomerates, and at least in Kansas, most of the electricity is going to California. The financial considerations attendant to a turbine can be complicated, but the average turbine pays the land owner 8,000 a year, and typical leases are 20 years. There are spacing requirements and the soil must be of the right composition to hold the thing upright. The developer must front about 2 million to erect and bring on line each turbine. The math tells you that if your ground is just right, and you have enough of it, you will be well served to choose wind over crops or cattle. I should mention that if a turbine(s) on your property is in a great wind zone, you may also negotiate a financial reward based on a kw/hr basis.
The Tri-fecta. We drove by a number of ranches that were truly blessed. They had wind turbines happily supplying electricity to the west coast, a number of oil wells covering their operating expenses and either cattle or irrigated crop land to keep them happily belted into first class as they winged their way to Europe or South America for a get away. Or you could emulate the late T. Boone Pickens, a legendary oil man who understood risk. Mr. Pickens was broke when he borrowed money and formed a company to find and produce oil. He died just short of being a billionaire, as he, like all wildcatters, did not always come out on top in a speculation. He did however, understand America’s energy needs and was not lazy.
Mr. Pickens died last year, and left an interesting philosophy on the table when he said, “I’m a Republican. I don’t want to go to heaven and have to face my family up there and tell them I voted Democratic”
I’ll bet you didn’t see that one coming!
Have a great weekend, stay safe and VOTE.