Update
The NDIC sets the "spacing" for oil wells in North Dakota. The NDIC schedules hearings on a monthly basis to meet with oil companies and others to set policy, regulations, issue permits, etc., with regard to the oil patch.
One of the issues the NDIC deals with is the "spacing" for oil wells. "Spacing" can be different for oil fields and for different formations.
Generally speaking, Bakken formation spacing has been 640-acre and 1280-acre spacing. In the early days, the spacing was generally 640 acres, but gradually the spacing has increased to 1280 acres. It is my understanding that Bakken spacing is now set for 1280 acres unless otherwise specified.
Regardless of where the well is placed in that 640-acre or 1280-acre spacing unit, anyone who owns mineral rights in that spacing unit shares in the royalties of oil taken from that spacing unit.
More than one well can be placed within a spacing unit. Again, in the early days, generally one well was spud in one spacing unit. If the well was productive, that well "held the lease by production." Not only did the producing well negate the need to re-negotiate the lease on a regular basis (as long as the well produces, the lease remains in effect), but it also held the spacing unit for future drilling. Over time the number of wells being permitted in a spacing unit has increased from one well to as many as eight wells in one 1280-acre spacing unit. [Update: September 03, 2011 -- companies are now requesting as many as 7 wells in 640-acre spacing.]
In cases where the oil field is particularly productive, the spacing has been brought down to 320-acre spacing, and I have even seen 160-acre spacing for the Bakken.
Vertical wells into the Madison and the Spearfish may more likely be 40-acre spacing.
Spacing does not mean that there are wells are actually sitting 640 acres or 1280 acres from each other. Several wells can be placed right next to each other; all of them will be governed by the 640-acre or 1280-acre spacing rules.
Original and Earlier Posts on Spacing
Disclaimer: I believe the information below is still correct, but I included an update above to say it a bit differently. It can be a difficult concept to understand.
The Q & A was in the comments to another post, but I doubt many folks read the comments.
So, as a rough draft, I will "cut and paste" what I wrote, and then edit it if it is incorrect or confusing.
This was my answer to the question regarding "160-acre spacing" and "320-acre spacing."
In addition to this stand-alone post, this site also has a very extensive frequently-asked-questions post (FAQ). It's one of the tabs at the top of the blog.
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"160-acre spacing" and "320-acre spacing"
One comment before starting: there's a difference between the spacing units the state defines and the spacing of wells, if I understand it correctly.
Until recently, the standard spacing unit in North Dakota was 640 acres; in 2010/2009 (I forget exactly which year), NDIC set the standard at 1280-acre spacing units. Unless specified otherwise, producers can assume new oil fields or additions/extensions to existing fields will have 1280-acre spacing.
That means when a well is placed in a 1280-acre unit, any mineral owner in that 1280-acres shares in the oil royalties produced by that well.
However, with permission from the NDIC, a producer can put one, two, three or more wells on that 1280-acre unit. The producer has to convince the state (NDIC) that the well will be financially viable. (They don't want a lot of wells for no reason; of course, the producers want to minimize expenses also).
The terminology gets confusing when multiple wells are placed on one spacing unit. Over time, reporters are becoming more consistent. The state determines the spacing unit, e.g., 640- or 1280-acre spacing. That does not mean that only one well can go in that spacing. With agreement between operators and the state any number of wells can be placed on a single spacing unit.
If there is one well on a 1280-acre spacing unit, anyone who owns any acres in that spacing unit will share part of the royalties generated by that one well. If two wells are placed in that unit, anyone who owns any acres in that spacing unit will share royalties from those two wells. Even though there are two wells on that 1280-acre spacing unit, one does not say the wells have 640-acre spacing. The wells themselves, no matter how many on that spacing unit, are paying royalties to mineral rights owners based on 1280-acre spacing. Over time, the state could chance the spacing unit to a different size.
To repeat: for the mineral owners inside a 1280-acre unit, the mineral owners will share royalties from however many wells are placed in that unit.
In the "old days," vertical wells were often sited on 40-acre spacing units.
For the operators of the wells in that unit, they will recover their costs per well based on the percent they have in that well.
Whiting's Sanish Field Development Plan (SPDF) will have additional wrinkles for mineral owners because some of those laterals extend slightly past section lines. [The Whiting Sanish Field Development Plan can be found in slide 33 of this presentation. The link may change over time, but the presentation will probably include this plan on one of its slides for quite some time.]
In their SPDF, note that Whiting will put in as many as seven (4 Bakken and 3 TF) wells in some 1280-acre units.
160 would (almost always) be a 1/4 section and 320 would be a 1/2 section. A spacing unit is simply the area within which all mineral intrests share the expenses and revenues from a particular well at a given producing interval (field and pool). In ND, spacing units are usually multiples of govt 1/4 1/4 sections in other words 40, 80, 160 320 640 and so on but ndic has authority to approve other spacing patterns. Many vertical wells in ND are on 40 acre spacing. Since most activity today is horizontal, smaller spacing units dont work as the need for the bend and a lateral requires some horizontal distance. In a perfect world, every well is "draining" oil from the approved spacing unit size, whatever ruling has been made. So long as this is the case, this is an equitable situation for all interests. NDIC approves spacing unit size and pattern based on geologic, engineering and economic data presented by all interested parties to any given well at their scheduled hearings or if permanent spacing has been determined, then it is just a permit process. In practice, the well operator highly influences the spacing rulings as they are in possession of most of the relevant info and they are bearing the cost of exploration or development.
ReplyDeleteThat's much more succinct. Thank you.
ReplyDeleteThis is important with regard to discussions of unitization. Two examples:
In one section, the state defines 640-ace spacing units, and the driller puts one well in the section.
In a different section, the state defines 640-acre spacing unit, and the driller places four wells on the same pad, or even in the four different quarters.
Analysts are starting to talk about unitization when spacing gets down to 160 acres.
Is the state going to go back and redefine that 640-acre spacing unit with four wells as four 160-acre units for the purpose of unitization, or is the "160-acre spacing" that analysts mention just a colloquialism and technically incorrect, but a shorthand method for determining when saturation has been reached and unitization makes sense?
If two wells are a unit-one goes two miles north, the other two miles south are all four sections a unit for pooling?
ReplyDeleteUnlikely. The two wells are probably in different spacing units. The horizontal going north is probably in John Doe's spacing unit, and the horizontal going south is probably in Mary Jane's spacing unit. Pooling pertains to one well, as far as I know.
ReplyDeleteeco pads equal four wells-they all start in the same section. Production from all four pooled for owners of that section? If the horizontals go N, S, E, W for two miles equals five sections or eight sections-all pooled?
ReplyDeleteEach well has it's own name and legal description. As far as I know, pooling is well-specific.
ReplyDeleteThe horizontals won't go all four directions. Two will go one direction, the other two the opposite direction. It's possible all four could go same direction but due to geology, they won't go at ninety degrees of each. For example, you won't see two Eco-Pad horizontals running north and the other two ruining east. Has nothing to do with anything except geology.
This doesn't mean pooling won't take place at the same time for all four wells. It just means pooling will be well-specific.