Sunday, April 3, 2011

Expiring Leases -- DNR As Third Example -- Bakken, North Dakota

The scuttlebutt is that expiring leases could appreciate 10-fold in the Bakken at the end of this year.

Now that annual reports are out, one might be able to find out to what extent one's favorite company is at risk with regard to expiring leases.

Unlike CLR and OAS, Denbury (DNR) does not break out the exact number of net mineral acres that could be lost at the end of the year if not producing.

DNR breaks it out by percent, and does not break out individual areas. Instead, DNR simply reports that 31% (in 2011), 20% (in 2012), and 13% in (2013) are subject to loss if not producing, and that is for their entire Rocky Mountain prospect.

DNR reports that it has 275,000 net acres in the Bakken. Applying those percentages across the board (which is subject to all kinds of problems, but nonetheless, that's all we have), DNR is subject to lose the follow number of net acres in the Williston Basin Bakken if not leased by the end of December of the corresponding year (numbers rounded):
  • 2011: 85,000 acres
  • 2012: 55,000 acres
  • 2013: 36,000 acres
DNR currently has a 5-rig drilling program. (Before the merger with Encore, DNR had a 2-rig drilling program in the Bakken.) Therefore:
  • 2011: 85,000 / 1280-acre units = 66 wells for 5 rigs --- more than 12 wells/rig
  • 2012: 55,000 / 1280-acre units = 42 wells for 5 rigs 
  • 2013: 36,000 / 1280-acre units = 28 wells for 5 rigs
Compared to CLR, DNR has significantly more acres/rig at risk, if assumptions are correct. But it does not appear to be excessive.

After completing these statistics for three companies (OAS, CLR, and, now, DNR) it appears there is a lot of talk about losing leases due to lack of activity but it appears that these companies are well positioned.

I wonder if a company with a unique business model (NOG) that has less control over its future, is at more risk of losing leases. NOG counts on other operators drilling on their leased acreage.


For CLR's expiring net leases, click here.
For OAS's expiring net leases, click here.
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2 comments:

  1. StanApril 4, 2011 at 5:26 PM

    NOG 10K pages 21 thru 24

    "As a non-operator, NOG is subject to lease expirations if an operator does not commence the development of operations within the agreed terms of our leases. All of our leases for undeveloped acreage summarized below will expire at the end of their respective terms, unless we renew the leases, establish commercial production from the acreage or some other "savings clause" is excercised. We expect to establish production from most of our acreage prior to expiration prior to expiration of the applicable lease terms however, there can be no guarantee we can do so."

    year ended Dec 31, 2011 - 37,395 net acres expiring (7,950 are not Bakken, but Yates county in NY)

    year ended Dec 31, 2012 - 40,184 net acres expiring
    year ended Dec 31, 2013 - 35,072 net acres expiring
    year ended Dec 31, 2014 - 14,347 net acres expiring

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  2. Bruce OksolApril 4, 2011 at 7:53 PM

    Thank you. I was going to add NOG as the fourth example (along with OAS, CLR, and DRN) but without knowing the operators, it is not as meaningful.

    I think there might be a bigger story, however, based on the decreasing number of net acres expiring in the out years. NOG got into the Bakken early and those leases are now expiring. They need to continue acquiring more acreage if they want to grow, rather than just drill out their existing acreage.


    Thank you very much for providing this information. It gives us something to compare the others with.

    By the way, I believe NOG has about 150,000 net acres in the ND Bakken.

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