It's Getting Crowded In The Bakken; Operators On Top Of Operators With Overlapping Drilling Units On Top Of Overlapping Drilling Units -- The Kennedy-Miles Wells -- December 21, 2016

This is a long note; the usual disclaimer applies:

• there will be factual and typographical errors
• facts and opinions are interspersed; it can be difficult to separate facts from opinions
• if this information is important to you, go to the source.

In addition: it would be interesting if a Bakken expert might chime in on the last observation at the end of the post.

Update: see first comment regarding Pugh clauses. 

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The Post

I always find it "interesting" when I post something and then something from "out-of-nowhere" seems to pop up.

A couple of days ago I spent a lot of time updating CLR's Kennedy-Miles 2560-acre stand-up drilling unit in Dimmick Lake:

• the Kennedy-Miles wells are tracked here
• production profiles were updated here
• screenshots of the 2560-acre spacing unit is here

Now, check out Case #25524 in January, 2016, NDIC dockets, agenda released today:

Application of Oasis Petroleum North America LLC for an order amending the applicable orders for the Dimmick Lake, Siverston and/or Johnson Corner-Bakken Pools, McKenzie County, ND to (i) authorize up to three wells to be drilled on six overlapping 2560-acre spacing units consisting of Sections 25, 26, 35 and 36, T.151N., R.97W.; Sections 30 and 31, T.151N., R.96W. and Sections 25 and 36, T.151N., R.97W.; Sections 28, 29, 32 and 33; and Sections 29, 30, 31 and 32, T.151N., R.96W.; Sections 1, 2, 11 and 12; and Sections 2, 3, 10 and 11, T.150N., R.97W.; (ii) authorize up to eighteen horizontal wells to be drilled on four 1280-acre spacing unit described as Sections 25 and 36, T.151N., R.97W.; Sections 29 and 32, T.151N., R.96W.; Sections 2 and 11; and Sections 3 and 10, T.150N., R.97W.; and (iii) for such other relief as may be appropriate.

Without pen and paper (or really good Adobe Photoshop skills), it's way too difficult to diagram this. Maybe later. Suffice it to say that there are several points of interests for newbies, and even a comment that perhaps a "Bakken expert" might be willing to also comment.

First: in this are, "overlapping drilling units" are overlapping additional "overlapping units.

Second: this is why people have questions how royalties work with overlapping units. The note at that link is way too verbose, too complicated. I'm going back to correct it. Bottom line: each well and its pool stand on its own.

Third point of interest: in the area under discussion, the Kennedy-Miles drilling unit, SM Energy also had extensive interests. In 2016, SM Energy sold its acreage in this area to Oasis. 

Fourth, today the agenda for the January, 2017, hearing dockets was released. Note Case 25524 (case, not permit number):

25524, Oasis, Dimmick Lake, Siverston and/or Johnson Corner-Bakken, i) 3 wells on each of six overlapping 2560-acre units; ii) 18 wells on four 1280-acre units; 90 wells, McKenzie

Fifth, Oasis is requesting to site wells in 2560-acre drilling units that also contain sections in the CLR Kennedy-Miles drilling unit.

As I wrote to a friend: the Bakken is getting crowded. Operators are drilling on top of each other, even without "top leasing." It's getting very, very confusing. And more important than ever for folks to keep on top of things if they have mineral rights. Easier said than done. 

Now a question for a Bakken expert: I think I understand why one operator (Oasis, in this case) can drill horizontals into sections where another operator (CLR, in this case) already has horizontals. I think I understand it, but I can't articulate it easily. I am simply curious if others have noted this.

Finally, this is why, I think, the Corral Creek-Bakken unit was unitized by the state some years ago. 

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The following graphics for my use only. I don't have Adobe Photoshop so I can't do this the way I would like. I would like to use "transparent" colors for the colored squares, but I can't do that. So instead of using transparent-colored squares, I simply made the squares slightly different sizes so I could imagine how the six overlapping units relate to each other. The usual disclaimer applies: there may be errors. If this information is important to you, go to the source.

The first graphic:

• the CLR Kennedy-Miles wells are noted; they are on the stand-up 2560-acre spacing unit
• AA, BB, CC, and DD are four 1280-acre spacing units on which Oasis will request 18 wells for each unit
• 4 x 18 = 72 wells

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The second graphic, much more complicated. As noted, I was unable to use "transparent-colored squares" which would have been a better way to do this, but hopefully it makes sense.

The "bottom layer" is the dark blue stand-up 2560-acre CLR Kennedy-Miles spacing unit. That unit and those eight wells have been there for quite some time. This past week, CLR was granted eight more permits which will be placed in the same area, making a total of 16 Kennedy-Miles wells on this 2560-acre spacing unit. Eight horizontals will run south; eight horizontals will run north.

In the January, 2017, NDIC dockets, Oasis is requesting to place up to 3 wells on the six 2560-acre rectangular spacing units represented in various colors:

• A (pink): sections 30, 31 // 25, 36
• B (green): 29, 30, 31, 32
• C (yellow): 28, 29, 32, 33
• D (light blue): 25, 26, 35, 36
• E (beige): 1, 2, 11, 12
• F (red): 2, 3, 10, 11

It's interesting to note that Oasis has two (2) 2560-acre units that overlap CLR's 2560-acre stand-up unit.