Land company profits through diversification

GREELEY – Ed Orr’s venture into the oil and gas business has not been without risk, or reward.

Consider that three years ago when Orr, owner of Orr Land Co. in Greeley, decided to diversify into oil and gas the price of oil was about $70 per barrel. That was more than three times what it sold for just four years earlier.

With years of experience dealing with land and mineral rights issues, Orr decided to drill a couple of wells on some of his extensive land holdings in the proven Denver-Julesburg Basin in southern Weld County to see if he could tap into the rising price of oil.

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His timing could not have been better.

The price of oil just kept rising, reaching a peak last July at more than $140 per barrel. “We’ve been fortunate in the timing of it,” Orr said with some understatement.

Falling oil prices in recent weeks have brought oil back down to where it was three years ago, and with increased overhead costs, his profit margin has narrowed, but not enough to scare Orr out of the business.

“What we’ve seen is everything’s gone up – steel, pipes, cement – all the major components of drilling a well all get their piece of it,” he said. “But we think we can still find ways to be profitable with $70-a-barrel oil.”

A natural fit

Orr was propelled in to the business by repeated conflicts between the rights of those owning the land and those holding the mineral rights to what lies underneath it.

“We’ve had to deal with it for so many years in developing the surface rights,” he said. “When you look at the addition of the oil component with what we do here, it’s just been a natural fit.”

Orr Energy LLC has been an unqualified success by most any measure. Orr said those original two wells have grown more than sixfold in the last three years.

“We’ve actually got 13 online and pumping on ground that we own both the mineral and surface rights,” he said. “We’re in the process of getting another four permitted – we plan to drill in the next six months – and five more behind that.”

Orr said he hopes to be able to drill a new well every month. “Why that goal is there is that economically it’s the most efficient for the little company we are.”

Tricia Beaver, hearing manager for the Colorado Oil and Gas Conservation Commission that grants well drilling permits, said Orr is definitely an anomaly when it comes to someone outside of the oil and gas industry developing such a business.

“I don’t think it’s very common,” she said. “I’m starting my 25th year and I can think of only two or maybe three instances of something similar that I’m aware of.”

Beaver said it’s not uncommon for a landowner to partner with an oil and gas development company and share the profits of drilling. But for someone to own the surface and mineral rights and start his own oil and gas production company is not the norm, she said.

The expense of drilling is usually the biggest hurdle, Beaver said, with each well costing “anywhere from a half million to a million dollars per well, depending on the depth of the well.”

But with many wells in the Denver-Julesburg Basin demonstrating a lifespan of 30 to 40 years or more, Beaver said that investment can usually be paid back with interest.

Setback boost

Orr Land Co. and Orr Energy LLC got an assist from Greeley earlier this year when the city agreed to reduce its residential setback requirement from 350 feet to 200 feet from wells.

Becky Safarick, Greeley community development director, said the farther setbacks – designed to better protect residents in the event of a fire – were preventing the development of seven to eight acres of land.

“We did fire studies that said we could reduce the setbacks without compromising public safety,” she said.

Every drilling proposal within Greeley city limits still has to go through a public hearing process, but Orr said reducing the setback has “alleviated much of the pressure” that had accentuated the conflict between surface and mineral rights holders because the longer setbacks had “virtually sterilized” development of some properties.

Meantime, Orr said he’s been enjoying striking off in a new direction with his energy business. “For me personally, the diversification has been great,” he said. “The oil business has been a huge challenge for me, but I love that.”

And with land sales not moving as fast as in previous years because of the economic downturn, Orr said it’s been good to have another pursuit to fall back on.

“In the brokerage business, we’ve seen a shift in it’s not been as fruitful as in the past. Being able to focus on oil and the challenge of that has been very rewarding.”

Is he worried about how far the price of oil may fall?

“It’s making me relook at cost, certainly, and relook at other ways we can become more efficient,” he said. “If we see a further fall, we may need to slow things back down.”