David:
You are correct in your statement that you will recieve royalty (per your lease agreement) on every well drilled in your spacing unit.
Yes David,
The producers will first attempt to establish a greater market share in terms of mineral acres under lease. The best way to do that in terms of sheer mineral acres is to succeed in locating a discovery Horizontal well on each 1280 spacing unit. Once the leases involved in the pooling area are then “held” in production in terms of economics they have accomplished their purpose. The next stage of development of the field will then be a series of “infield” wells. The H wells fall off quickly in production even though they are very good initial producers and the vertical “infield” wells while they dont produce as much as will an H well will continue a much slower decline of production and over the years can provide more income. Should you have a vertical infield well you will not be required to share your royalty with a pool, another advantage of a vertical well for the minerals owner.
David:
At times when there are various operators/brokers who hold the minerals in one section, one operator may attempt to top lease the expiring leases within the section in order to gain a majority leasehold. By doing this, the operator will sometimes attempt to negotiate with the actual mineral owners for a top lease instead of the other (operators/brokers), whose terms would most likely be less favorable to the top leasing company. Object in this case, is to gain the majority leasehold in the most economic way.
Zeb, not to argue, but many of the second wells I have seen drilled in a spacing pre-ecopad were extended long laterals, originating from the opposite end of the spacing from the original well. I like your term of market share, Zeb. I think in the second wave of drilling we may see a return to short laterals because long laterals seem inefficient after natural pressure has been exhausted. Every drop of oil and water that is produced close to the pump lessens the vacuum exerted farther down the line. Anyone care to guess how much force is exerted in the last half mile ? The extended long lateral was necessary for the land grab, it cut the total number of wells needed to hold the western half of ND in half. When all of the currently economic acres are held, I think the extended long lateral may be found to be inefficient and the NDIC will have a decision to make, I think the extended long lateral was rationalized to be protecting correlative rights, but I don’t think it does, but it sounded good at the time. But the NDIC is also charged with preventing waste, and extended long laterals are not as productive per extremely expensive foot of lateral as a well with 3/4 mile to 1 mile lateral. XXL lateral wells leave more oil than necessary in the ground, in my opinion, wasteful.
Increased density wells may be resolved administratively under the proposed
amendment to NDAC § 43020388.1.
Applications to amend field rules to
allow additional wells on existing spacing units will be handled similar to
pooling applications. The director is authorized, on behalf of the NDIC, to
grant or deny such applications.
The new proposed NDIC administrative rule changes for 2012 appear to be streamlining the permit process in well permitting for producers.
more of the proposed changes can be found here:
http://www.bwenergylaw.com/News/documents/NDICProposesNewRulesfor20…
Thank you Charles,
At first it was a bit confusing to me when surface rights were described by some as top rights… Then I learned that top rights meant actually top lease which meant that the mineral owner leased his mineral acres to another company to begin upon expiration of the present and in effect that fails to produce. Thank you for the insight as to why a top lease exists.
Hello all,
Just thought I would offer the thought that I talked with the landman from the oil company that is drilling on our mineral acres…and he told me that his oil company has now received their first permit for a second well on one of their 1280’s (he had a technical term for this second well that I do not remember)…with hopes of having several wells on each 1280 in the years to come. This would NOT be happening in my area at this time he told me…but…it does say, in response to some of the earlier posts on this comment wall…that they do know that a 2 mile horizontal does not draw the oil they want to draw out…thus they are planning, once every 1280 has one well on it, to drill other wells in the same sections for more production. Now, as to how they divide up the royalties, that we did not talk about. i would assume that every owner in the 1280 would be included in every well on that 1280, but I do not know that.
R W Kennedy
No argument here, I realize that one producers idea of how to develop a field can also differ from the next. I think you are right in that we will see an evolution of sorts in how this development plays out. I see the applications for multiple wells from the same pads, one of the changes that will become more common place as a matter of economics. Thank you for your insight.
Zeb:
Hope you have a place to stay as I understand lodging is very booked. I am planning a trip later this year to the Roosevelt/Sheridan County area, primarily to do some document research and to physically visit the leases where I have minerals. Several months ago, I called a small motel in Culbertson,MT and at that time, they required a month advance reservation. Hopefully, with more motels being constructed in the area, this problem might ease up but oil companies might begin to book rooms on a long term basis.
I hear ya…but also…the ball appears to be in the oil company’s court. I’m not sure of that “trust” thing, but I also will maintain a good relationship with the legal firm that is helping us get the estate in order so that, if we should need them again, they are up to speed…which most of them are I would think!! Several in our neck of the woods speak of the chaos of the gold rush’s or old and wonder how this “chaos” compares even when we think we are abit more civilized and knowledgeable.
I find these discussions regarding the more technical and geological aspects of mineral development very interesting. They help me to make an attempt at understanding why oil companies are taking certain approaches towards the leasing of mineral rights, and the consolitation and accumulation of leases. It seems a way to take a peek into their long range goals. Once we have a group of more knowledgable mineral rights holders what then. At the rate acerage is being leased and production is securing those leases long term for the companies it wont be long before all of the Bakken is under their control. My acerage is on the fringe of previously developed fields and has yet to be developed so I might get one more shot at having some control through the lease process. My question after all this babble is will we have a voice after all the leases are secured or will we just be knowledgable spectators, trusting the oil companies profit motives will force them to make decisions in our best interest?
Steve, if /when you get held by production you will have no say at all save that you are owed a royalty from production. A lease is a declaration that you are giving up all rights to your gas and oil, with merely the POSSIBILITY of reversion in the future. That is rough but understandable, now for the bad news, it can be really tough to get your royalty out of the operator. I think if one is to lease they should have a master crafted document that spells out that things such as payment of royalty after first sales must happen within a certain time frame or the lease is void, a broad disclaimer of warantee of title and that lessee leases at it’s own risk in case of some small blemish on your title, that nothing short of production will save your lease for the operator, pugh clauses and seperate leases for each spacing, reasonable shut in period with greater than the usual $1 per acre per year to encourage the operator to produce and many other clauses that would be beneficial to you. Sounds draconian ? Virtually none of such clauses would kick in if the operator does what he proclaims to want, to produce your minerals within a specified period of time and pay you a royalty. Now, is that so hard ? The reason your lease should be written by a master [ legal ] craftsman is because while you will never get to renegotiate it as long as production continues, the oil company can get a court to redefine the language and clauses that protected you 4 years ago [ pugh clauses for example ] no longer protect you, unless they contain very specific language not found in over 90% of leases of 4 or more years ago. Many people with gas wells are paying post production costs, that had not been paying for years prior to a court decision last year. The deck is stacked, and oil companies can beat you with your own money. I think a bad lease is worse than no lease. The bad thing is if you only own an acre it probably wouldn’t be cost effective to spend thousands of dollars on a great lease form, but I think they more than the large acreage holder need to be certain of getting paid, because if they cannot afford a great lease form, they cannot afford a great deal of legal work [ probates, quiet title actions ] in order to get paid.
Zeb:
I have heard that top leasing is a very common activity in the ND area as leases are nearing expiration dates and operators are striving to get a leasehold on various sections. I am currently involved in a top lease offer with a similiar situation.
Charles,
At the present time I am planning on taking a camper to the homeplace north of beach and using a car to get around to the various nearby countys also.
I am planning a trip soon to GV county, the main purpose to research records on several leases, but certainly would be willing to find records for others while I am there.
R W Kennedy,
I think your assessment of the issue of source rock pressures is very accurate and a reading of North Dakota Code also indicates that NDIC is as well, but it seems obvious that the law in this area will have difficulty keeping pace with the new technologies of Reservoir pressure maintenance and the practice of lateral boring. I really do have no idea what the end bore pressures can build to, but I think they are finding that thirty stages fracking might be trying to take it too far.
Zeb:
Good luck on your trip and be sure to let us know how bad traffic is around Williston if you go there.
being force pooled and not signing a lease, has no advantage regardless of where you are.
Why is/was Bakken oil $30 less than the oil on the NYSTX?
sure r w, its a matter of my own opinion, but there are always two sides to a coin, for instance, what about the minerals owner who pays ends up paying for a dry hole, or a hole where production falls below an amount that will actually pay off… High risk can pay high, but also can lose much. If you were guaranteed a pay off, of course, who would ever sign a lease. In the event of a horizontal well production could actually fall off before payback was reached. Its hard to be a fortune teller, and not being one to feel comfortable with high risk situations I take the attitude that a fair deal is best for all concerned, and I would feel terrible would I suggest to someone that they not participate and later they lost and ended up with cleanup costs, no income and a dry hole. It can happen.