Exploration in the seventies started out much the same as we experienced in the late sixties. Oil and gas commodities were still cheap, proration continued and Congress was trying its best to eliminate what they considered loopholes in the tax laws that provided for write off of intangible drilling costs and the depletion allowance. Local Independents joined TIPRO and IPAA members in numerous trips to Washington trying to make them understand the need for these incentives in order to forestall increased dependence on foreign sources of oil. Some members of Congress listened while others were so jealous of Texas oil they refused to even meet with our delegations, so the battles continued between the producing and non-producing states. The top income tax bracket now seventy percent (70%) dried up some to the capital coming into the business.
Despite these conditions, the Oil and Gas Exploration business, though not lucrative, continued at a brisk pace. Good deals were always marketable and there were quite a few deal buyers. Net revenue interest was critical and anything less than seventy-five percent (75%) was out of the question. Since most farmouts started at this level, overrides were considered impossible. We could still acquire landowner leases at favorable royalties, but since so many deals depended on farmouts, back in after payout became our only recourse in most cases.
Deals were not easy to sell. We usually had to go to Houston, Dallas or San Antonio to find someone who agreed with the potential and risk associated with the prospect. We mostly went to Houston and as we could not afford to fly, a typical selling trip went something like this. We would leave Corpus Christi around 5:30 or 6:00 AM, and drive to Houston in order to arrive after the traffic rush around 9:00 AM and we would try to show our deals at least three times. If we completed our appointments by 3:30 PM we would head back to Corpus. If however, we were delayed past 4:00 PM we would meet some of our friends at a bar and relax until 6:00 or 7:00 PM to let the traffic clear and then head home.
Not all deals were that hard to sell. One of our first deals where we were able to get a quarter back in after payout was at South Charamousca in Duval County, Texas. Exxon had just released logs on quite a sizeable oil field in the Upper Wilcox on the Northeast side of Charamousca Dome. My partner Bill Miller began mapping the field and the rest of the dome when he found a sizeable up-to- the coast fault crossing the southeast flank. He called me in to show me a closure he could map against the high side. While we were scratching out the details, Winn Sexton who was working with Kelly Bell at the time happened to come into our office and saw our map. We explained the prospect and told him that we were sure we could get a seventy-five percent net interest farmout from Mobil with no back in as this was DCRC acreage.
Winn said “let me take that map up to my office for a few minutes” and thirty minutes later he returned and asked what we would take for the deal if we got the farmout. Our answer was $3,000.00 and a quarter back in after payout. He replied, we’ll take it, go get the farmout. The well worked with 50 feet of pay that disappointedly started out as a gas well, but then turned to oil. It did pay out and we had our first working interest. Unfortunately we were unable to offset this well, but it kept our curiosity alive and we continued to work on that side of the dome. I have reproduced that map below to show that a good deal in those days did not have to be very sophisticated. Later, when we formed Suemaur Corporation, I used this structural drawing for our logo.
Our minor success at Charamousca kept us busy trying to find the rest of the oil that didn’t belong to Exxon. While mapping and searching the nearby data we found a deeper down dip well that had cored oil in a thin sand well below the top of the Wilcox. Based on this show and a second fault parallel to our discovery fault that we assumed to be down-to-the coast, we mapped in a nice looking anticline. We got seventy-five percent net interest farmout from Mobil on the northeast quarter of Section 288, acquired a forty percent back-in option farmout from Killam & Hurd and purchased a 160 acre lease on the Worden & Drought track. We got a turnkey bid from Rhodes & Hicks Drilling Company for a 7,000 foot test for $37,500.00 through the logs or plugging. We thought we had a very salable deal.
Surprise, every one who saw the deal, loved the concept, but no one wanted the obligation of having to drill an offset well on the forty percent back in Killam Tract within ninety days of completion of the first well. We lowered our sights and began asking for a mere one eighth back in and still no takers. Then in late November a miracle happened. John Manley, a seasoned operator, returned from New York with a sack full of drilling dollars and desperately needed a deal, so we were forced to sell it to him with our original one quarter back in. Well as Bill Miller used to say “In this business you can go to bed poor and wake up rich” because at 9:00 PM while Bill was snoozing in his car, I pulled a log with 100 feet of oil pay on a prospect covering 150 to 200 acres. I woke Bill up and told him that we had a quarter interest in at least 1,000,000 barrel of oil and as oil was approaching $10.00 per barrel we were each millionaires.
It was the night of the annual Baroid Christmas party, and as Bill started his car to head in for the party I reminded him that we needed to keep this well” tight” until we figured out if other acreage was involved. I stayed at the rig to bring the cores back, and when I got to the party two hours later everyone was congratulating me on the discovery. So much for tight lips Miller. Our controlling fault turned out to be up-to-the coast, and we caught a nice up thrown closure at the top of the Wilcox that was filled with oil. We never did figure out the reason for the show in the down dip well.
This was 1973 and the beginning of the roar. The OPEC embargo caused panic at the gas stations, and oil started climbing toward what most banks thought would be $100. Of course it didn’t get there, but the value of our oil property was escalating faster than we could produce it, and drilling costs were going crazy. We drilled four more development wells, and the last one – turn- keyed to only 5,500 feet cost over $100,000 and just like today pipe was so scarce that we had to run used casing and tubing. Also you had to guard your pipe on location to keep if from being hijacked. In fact we lost a complete string of tubing down in Hidalgo County.
Bill and I were now at the top of our game. With our successes we were considered a reliable source for good deals. As I said earlier in my stories, each decade seemed to have its’ own special exploration techniques. We had mastered the use of available technology and seat of the pants regional mapping and exploration. We had very little access to seismic, and it always seemed when we did find some it tended to conflict with our ideas so some real ingenuity and creativeness was required. We were so efficient in putting deals together that one promoter from Houston suggested that we change our name to “Dial-A-Deal or Deal-O-Rama”. He told us that all he had to do when he came to town was tell us what county, what formation and how deep a deal he was looking for, and we would have one ready to show him.
We barely missed being the discoverers of the Lobo trend in Webb County. We had heard rumors of significant discoveries just across the border from Laredo. We couldn’t get the logs, but in researching the dry hole logs on our side we found an old Humble log that had a couple of obvious thin productive sands right below intermediate casing. The lease was held by Conoco, and when we inquired about a farmout their land man told us that Tony Sanchez was on his third and last extension of a farmout and that in 30 days if he hadn’t performed we could have the acreage. Well he sold his deal, and history was made on this lease when Consolidated Oil & Gas drilled the discovery well for the prolific Lobo Trend that covers most of Western Wells County and is still being drilled.
We did eventually get a fair share of the production from this trend. Early as an independent I teamed up with Paddy Lann, a prominent landman, in trying to get a farmout from Ginther, Warren and Ginther on a tract in Webb County known as the Webb County School Land. While with Texaco I had tried to get a well drilled on this tract. I remembered the prospect, and since Paddy knew the people at Ginther we went to Houston to talk to them. When I described what my prospect was about, Mr. Ginther pulled a map out of his desk, and said is this what you mean. I was completely stunned, as he had a direct copy of the Texaco seismic picture I had tried to get drilled. Anyway the lease finally expired, and we were able to put a deal together that didn’t work well but kept our acreage together and guess what, it ended up in the middle of the Lobo play. I am still getting income from these leases.
Our other exposure to the Lobo came about as a result of my relationship with another active land man, Seymore Wormser. Seymore and I had worked on a couple of deals and ended up serving together on the board of the First State Bank at six points. One day he came into our offices with a 5,000 acre, five year lease in Northern Webb County that he could get for $20.00 per acre and three sixteenths (3/16) royalty. This sounded interesting as we could carve out a nice override, and he agreed to go thirds with us. We found a 20,000 foot Hunt Sligo test in the middle of the block. We were not deterred by this as we would be working only the Wilcox. Hunt had a field office just north of Copano Bay, so we called the engineer and he invited us to come up and review the well files. We discovered that the well had encountered tremendous gas shows through the Wilcox sands though there were no obvious pays on the logs.
Based on these shows the three of us went to the bank, cosigned a $100,000.00 note and acquired the lease. We conjured up an Upper Wilcox prospect in the center of the block and were getting the maps together to start showing the deal when Bill happened to be in Houston visiting an old friend of ours, Dale Mueller, who was now a District Geologist working for Skelly Oil Company. Dale was worried that Skelly did not own a single lease in the Lobo trend that was now the hottest play in Texas. Bill said “you came to the right place and we can solve your problem.” We happen to have the last open acreage available, and you can be a hero by paying us $50.00 per acre for a seventy-five percent (75%) lease leaving us a one sixteenth (1/16) override. Dale was happy, and we were delighted. Skelly merged with Tidewater and for five years did not drill and had to extend the lease.
In the meantime we were desperately trying to get a farm out to protect the lease, but they would not let us have it. It turned out that a young geologist, Mike Lucente, had mapped a Lobo prospect on the lease and was determined to get it drilled. Low and behold, Tidewater drilled and found the largest Lobo Field in the entire trend with massive high porosity and permeability sands that today after producing over 120 BCF of gas is still alive and kicking. This field with the best reservoir rock in the trend defined the northeasterly limits of Lobo sand development. We tried to hire Mike, but Cox out bid us. He then proceeded to offset our lease block with a number of great Cox wells.
Well this is probably enough for now, so next month I will tell about becoming a Drilling Contractor and the three for one deals.
Dan Pedrotti
Geologist