We have been looking at our mineral rights in McKenzie County. Around June of 2022, our ownership percentage changed on our statements. It appeared to decrease substantially. We gave them an example well - one where we receiving roughly 1% and one where we were receiving roughly 1/2 percent. These wells had the same basic names - but did have different extensions. e inquired with the company why the percentage dropped and this is basically what they told us:
Prior to June 2022 two things to look at. You reflect two different decimals and two different identifiers. These identifiers are the Tracts you own in. The state of North Dakota made a change to how all companies reflect your interest. Previously the company reflected this on a tract by tract basis. Now we must show this on a well basis. Given both the tracts you own in have the same tract percentage factor. Just multiply each of the old (<6/22) interests by .06245706 then sum this will be the new percentage
Is the “tract percentage factor” the same as net mineral acres? Can we use that percentage as basis to calculate the gross acres covered under our mineral rights? Lastly, can someone explain what the State of North Dakota’s change was and how it impacted mineral rights owners?
Basically, since this change production numbers and revenues from the wells are less. We are just trying to figure out what it means. Thank you for your help!
The tract percentage factor (TPF) is not the same as net mineral acres. Net mineral acres is the total number of acres that you own the mineral rights to, regardless of how many tracts they are divided into. The TPF is a number that is used to convert your tract-by-tract ownership percentage to a well-by-well percentage.
The State of North Dakota’s change was to require oil and gas companies to report mineral ownership on a well-by-well basis, rather than a tract-by-tract basis. This change was made in order to make it easier for mineral owners to track their production and revenue.
The reason why your production numbers and revenues from the wells are less is because the TPF is lower than your old tract-by-tract ownership percentage. This is because the TPF takes into account the fact that some tracts may be more productive than others.
Here is an example to help you understand how the TPF works. Let’s say you own 100% of the mineral rights to 2 tracts of land. The first tract is 100 acres and the second tract is 50 acres. The first tract is producing 100 barrels of oil per day and the second tract is producing 50 barrels of oil per day. The TPF for the first tract is 1.0 and the TPF for the second tract is 0.5. The total TPF for the two tracts is 1.5.
If the oil and gas company was reporting your mineral ownership on a tract-by-tract basis, you would receive 100% of the production from the first tract and 50% of the production from the second tract. This would total 150 barrels of oil per day.
However, since the oil and gas company is now reporting your mineral ownership on a well-by-well basis, you will receive 100/2 = 50% of the production from each well. This would total 75 barrels of oil per day.