We are in a spacing unit in Roosevelt Co. Montana (28N57E)26,23.
Leased our % to Brigham in one section last year. They sent draft lease for MR in other section in same spacing unit in December. Have been trying to revise some terms/language since then but they are dragging their feet. Can aprox. 70+ acres net be leased to a competing Company, and could they drill? Must a company have the majority of the spacing unit lease directly to them in order to drill? Please educate me on options.
If you know who the operator is going to be, it is in your best interest to lease to them (as a rule of thumb)
If an operator has 90% of the leaseholds, than it won't matter who you lease to, for example of an exception.
If I had to guess at your situation......Brigham will be operator, so lease to them....because the higher percentage that the future operator controls, the higher the priority the drilling of that initial well will have. You might otherwise risk diluting their interest by going with a competitor and obviously then risk moving your well down the priority list.....and they have a lot of potential wells on the list with precious few rigs with an open dance card.
Unless the lease terms are significantly different or you know what % the operator holds at the moment, I wouldn't risk nickel and dimeing myself out of a well sooner....rather than later.
Whether this is helpful....you decide.
We also have mineral rights in 28N57E...only we are in section 25 (and a little in 26 as well).
Several months ago, I was told by the landman for OASIS oil (who are drilling in areas we have rights to in 28N58N - just to the east) that, while they have SOME rights in 28N57E, being Brigham has majority rights, Brigham will be doing the drilling and they will receive whatever their agreement is with Brigham...with Brigham being in the driver's seat.
I do not know anything about the 90% rule that Andrew refers to. I'm simply offering what the OASIS landman told me several months ago when I asked him about what sections they are planning to drill on. I offer this for what it's worth.
However, if I understand you correctly, it appears that drilling is taking place in sections 26 and 23?? That is good news as we have a small portion or rights in the SE corner of section 26...
There can also be a situation where a "pugh clause" exists and the drilling activity could be targeting different zones. In this case, more than one operator could be drilling on the same unit.
I'll pitch in on this one.
1) Can aprox. 70+ acres net be leased to a competing Company Yes if your lease has expired by terms, ie past it's expiration date.
2) and could they drill? Maybe. If your interest gives Company B >50% of the minerals then they would be the operator if they wanted to.
3) Must a company have the majority of the spacing unit lease directly to them in order to drill? Yes...and no. It helps. It also helps the operator to have as close to 100% of the lease in a drilling section. But they can go it as long as they have 50% or more. BUT..what happens (in this all to common of scenario) if Company A has 40%, and Company B has 30%, and the other 30% are dead, can't be found, are holding out or have leases with random Companies? They can still go to the board and ask to move forward with drilling and may get approval, but it's rarely granted, and rarely asked for as the more one company controls the better it is for them to cover the costs of the well, and thus easier to make money. Usually Company A will cut a deal of some sort with Company B so they now have 70% together. (lots of ways this can happen, but usually they swap drilling sections where they are both active, and have another split so each will drill) BUT....many times the companies will wait for the lease cycle to expire and then try to get the others leases...or they will move on to some other area.
Title: Can more than one oil company drill in a spacing unit. Yes, but it's very rare. Usually it will be done if they are drilling to 2 separate formations (like say 3 Forks and Bakken). However to do this leases taken for both companies will have to specifically say which formation the lease is for, and that's rarely done, and the OGL is for all formations...OR if one formation was released via a "vertical pugh clause" in the prior leases.
Daniel, what you wrote sounds like the agreement between Brigham and Oasis in our case...as I mentioned above. Oasis has minority interests...so they appear to have "cut a deal" with Brigham...what I can tell.
Daniel Dayton said:
I'll pitch in on this one.
1) Can aprox. 70+ acres net be leased to a competing Company Yes if your lease has expired by terms, ie past it's expiration date.
2) and could they drill? Maybe. If your interest gives Company B >50% of the minerals then they would be the operator if they wanted to.
3) Must a company have the majority of the spacing unit lease directly to them in order to drill? Yes...and no. It helps. It also helps the operator to have as close to 100% of the lease in a drilling section. But they can go it as long as they have 50% or more. BUT..what happens (in this all to common of scenario) if Company A has 40%, and Company B has 30%, and the other 30% are dead, can't be found, are holding out or have leases with random Companies? They can still go to the board and ask to move forward with drilling and may get approval, but it's rarely granted, and rarely asked for as the more one company controls the better it is for them to cover the costs of the well, and thus easier to make money. Usually Company A will cut a deal of some sort with Company B so they now have 70% together. (lots of ways this can happen, but usually they swap drilling sections where they are both active, and have another split so each will drill) BUT....many times the companies will wait for the lease cycle to expire and then try to get the others leases...or they will move on to some other area.
Title: Can more than one oil company drill in a spacing unit. Yes, but it's very rare. Usually it will be done if they are drilling to 2 separate formations (like say 3 Forks and Bakken). However to do this leases taken for both companies will have to specifically say which formation the lease is for, and that's rarely done, and the OGL is for all formations...OR if one formation was released via a "vertical pugh clause" in the prior leases.