Projects
Salinas Basin - Oil Field Redevelopment Projects
Southern San Joaquin Basin - Light Oil Field Redevelopment Projects
- Paloma area - Osso Bucco Prospect
- Buena Vista Valley leases
- Tejon Ranch and Wheeler Road prospects
- South Buena Vista AMI (North yowlumne)
Introduction to Oil and Gas Business in California
History
Ownership of mineral and petroleum rights in California has historically been dominated by large corporations or the federal government holding the rights in large reserves. Smaller companies and individuals or families also own mineral rights but proportionately less than in some other states in the USA such as Texas.
To acquire a lease for exploration, the lessee usually pays an annual rental per acreage or bonus fee, paid 12 months in advance. Rentals can vary from US$5.00 per acre to US$50.00 per acre.
The leasing company can usually retain access to the lease by continuing to pay in advance the annual bonuses/rentals without necessarily being committed to a particular work program
If commercial hydrocarbons (defined as “Paying quantities”) are discovered, overriding royalties based on the gross revenue are usually payable to the mineral rights owner and often to third parties such as lease brokers or consultants that have generated the prospect that has been drilled. Like the rental payment, the level of royalties depends on the perceived prospectivity of the acreage and may total up to 50.0%. Royalties in Salinas’ projects will vary between 18.0% and 25.0%.
Both federal and state taxes apply to companies producing hydrocarbons in California (further details to be provided in due course).
A very important aspect of the standard lease relates to how the lessee secures its rights to the future production from a commercial discovery. Usually only a limited area around the discovery is converted to a production lease. The size of this area may vary from as little as 40 acres for shallow, inexpensive wells to for example 160 acres around deeper oil wells or gas wells. Further, the lessee must continue to appraise the discovery by drilling and progressively secure its rights to each incremental area around the wells according to a specified timetable. This timetable also varies according to the depth and expense of the wells with as little as 30 days grace at the lower end and up to 120 days at the higher end. These time driven terms recognize force majeure when outside factors prevent the timetable being maintained and, although not guaranteed, there is usually scope for negotiation when conditions require.
The continuous drilling requirements can mean that the lessee needs to have substantial available cash resources in order to keep pace with development of the asset. Salinas recognizes this but is well placed to manage a success situation because of our strong cash position and exploration strategy of targeting strong flow rate and therefore good cash generating targets.
Focus Areas
Salinas has two principal areas of focus onshore in California. The San Ardo region of the Salinas Basin and the Southern San Joaquin Basin.
Both areas have a long productive history and are highly oil prone with access to very good infrastructure.
The Company is building a prominent, operated acreage position in each area.
