1280 Acre Spacing Unit in North Dakota

Good Day to all. I find this site to be very interesting and informative. Thanks to those who came up with this idea!

My question is about spacing unit. My family is has mineral acres in McKinze County in ND. The original lease stated a spacing unit of 1280 acres. One well was drilled on this spacing unit and another right close. We are receiving payments on both these wells as the second one was drilled on the east half of a section where we have the west half mineral rights. I imagine that is because the well was drilled on a section where we have an interest so they have to pay for what ever comes off that well altho to a lesser amount. Correct so far? Now, I see by the ND Oil and Gas Division web site that the company that has our wells now has been issued 12 more permits for drilling. This is four permits for three different sites. I assume this means each of the three wells will have four horizontal legs or fracking directions. Again, am I right? My final question is how is the spacing unit that allows for one well on 1280 acres suddenly have permits issued for 12 more wells? Has the spacing unit been reduced to allow for these many more wells in this unit? I also see where a number of different companies have the same thing going with the four permits for one well...must be the trend now? Thanks for anyone's insight into what could be a good problem...

I will try to answer you questions to the best of my knowledge as we are mineral owners as well in McKenzie County, ND.

1. You are receiving royalty payments for both wells because both of these wells were drilled within the 1280 acre spacing unit. Before they start the drilling, the operator will pool all of the leases within the unit that they want to drill. In your example, everyone who owns mineral acres in that 1280 acre unit will receive their portion of the minerals regardless of the location of the well within the unit. To figure out your royalty interest you would take your net mineral acres and divide it by 1280. You would then take this number and multiply it by your royalty interest to get an ownership decimal. This number is then multiplied by the barrels of oil sold to come up with what your share is each month. Always verfiy your ownership interest as we have found some significant mistakes on ours. Do not take what they put on the Division order for granted, apply the math and contact them if there are any discrepancies.

An example of the above math would be as follows: 20 net acres / 1280 (spacing unit) = .015625

Take this number and multiply it by your royalty interest(example using 18.5% interest): .015625 x .1875 = .00293. After you put your numbers in, they should match up to what was quoted on your division order.

2. Are all of the sites located within this 1280 acre spacing unit? If so, then the ND Oil and Gas division feels that the area can handle the wells. The three well pads will more than likely contain 4 horizontal legs each with 2 targeting the Bakken and 2 targeting the Three Forks formation. Continental Resources as well as others feel that the Three Forks holds a significant amount of oil that can be accessed from these single pad/four directional drilling pads. Spacing unit does not change, nor does your ownership interest. You still have the same decimal that you figured out above to apply to all of the successful wells that are drilled.

3. The trend is now leaning towards these Eco-Pads that Continental is using because they cost less and can be drilled faster for a total of four wells (2 Bakken and 2 Three Forks). Should be more of the norm as they perfect it in my opinion.

4. An example about your good problem: Using the ownership interest I figured in the above example you are looking at the potential for significant oil. Take the ownership interest times barrels of oil per day, times total wells, times $80 per barrel.

.00293 x 100 x 12 x 80 = $281 / per day. Not bad just for a short walk to the mailbox to get your check each month.

I know the 100 barrel of oil per day estimate is low, but the Bakken wells do have a steep decline after the first year so that is a conservative figure. Some of our wells are a year old and we are still seeing flows of 8,000 barrels per month, so about 250 barrels a day.

One word of caution however, don't go spend all of the money now as a lot of things can change (increased federal regulations, environmental concerns, well issues, etc). It is a nice thing to have when it comes, but do not budget and count on it each month.

Thank you Jon for your information.

My immediate family (three of us) have 400 undivided mineral acres within the 1280 spacing unit. The first well that came off this unit came in at about 800 and the other one that is close at about 300 or so. About 5 months ago a permit was issued to a seismorgraphic (not sure if I spelled that right-ha) re-survey. It has been since this was done that new permits to were issued to our lease holder (drilling co) I suspect they concentrated their activity based on the new info provided by that research. It suggests they found what they were looking for at that time. I cannot remember the % and cannot find the division order we recieved after the first well was completed. (moving and cannot find much right now-packed away). However, based on what info you supplied in your response and providing the new wells do come in at even 100 bopd per frack, (thinking much more at least initially) it could prove very good. Thanks again for your help..will keep you posted.

Where do you find the spacing unit figure for a well?

Hey Bonnie,

You would need to do some research through the North Dakota Industrial Commission to see what the spacing unit is. If you just google North Dakota Oil and Gas you will get to their website. They are typically either 1280 or 640 acres, but they are approving them anywhere from 120 acres to over 5000. If you let me know the range and section I could try to help.

Hi Jon, It is 152-104-19,30. Those are the two sections involved in the well. I was curious because being on the Montana border, only half of the sections are in ND. I go on the NDIC site a lot, but haven't seen it on there.

Jon Adams said:

Hey Bonnie,

You would need to do some research through the North Dakota Industrial Commission to see what the spacing unit is. If you just google North Dakota Oil and Gas you will get to their website. They are typically either 1280 or 640 acres, but they are approving them anywhere from 120 acres to over 5000. If you let me know the range and section I could try to help.

On 2-29-2012, the NDIC approved docket #17151 which pooled all interests in a spacing unit described as 152-104-19 and 30. So, I would assume that this is a 1280 acre spacing unit. You can call the NDIC for sure to confirm but I think this is accurate. If you are receiving payment, your division order should clarify as well.

Thanks for checking Jon. Actually we haven't received division orders on this well yet. That is why I was wanting to know the spacing unit so I would know what our decimal figure should be. They say in the next couple of months we should receive them. It has already had runs for over 5 months now. I would think they would be worried about paying 18% interest??

We have found with ours that they don't really care about the 18%. Plus, the 18% is only on anything that is over 150 days late, rather than the whole amount that they owe you. We have also had some companies not pay us within the 150 days and then tell us that the title needed to be cleared. The issue for us was simple, but they do have the right to withhold and not pay the 18% if there is any title issue discovered, no matter how small. Keep on it though and force them to get the DO out.


Bonnie Simons said:

Thanks for checking Jon. Actually we haven't received division orders on this well yet. That is why I was wanting to know the spacing unit so I would know what our decimal figure should be. They say in the next couple of months we should receive them. It has already had runs for over 5 months now. I would think they would be worried about paying 18% interest??

Just received the DO on this section and the spacing unit is 594.72

Jon Adams said:

On 2-29-2012, the NDIC approved docket #17151 which pooled all interests in a spacing unit described as 152-104-19 and 30. So, I would assume that this is a 1280 acre spacing unit. You can call the NDIC for sure to confirm but I think this is accurate. If you are receiving payment, your division order should clarify as well.

Do the numbers all look correct to you?