Yesterday, I received a note from a reader talking about the "huge" Slawson case. He/she owns a few mineral acres in two non-adjacent sections in Big Bend oil field, affected by this case. When we ran through the numbers we both agreed this amounted to 28 drilling locations for one individual who happened to own mineral acres in two non-adjacent sections in this field.
I remarked many years ago, and have repeated it often, that anyone who receives royalties from one well in the Bakken will eventually receive royalties from 12 wells in the best Bakken, 8 wells in the better Bakken and 4 wells almost everywhere in the Bakken.
I don't want to risk the reader's anonymity from yesterday, so instead of posting the two sections we looked at yesterday, here is what it looks like for a mineral owner who might happen to have acres in two non-adjacent sections in Big Bend oil field, specifically:
- 26-151-92
- 36-151-92
So, here are the results from the case with reference to those to sections. The format is: first line is the number of the paragraph in the NDIC order; the second line is the section or sections involved; the third line is the spacing unit size; the fourth line is the Zone number; the fifth line is the number of wells authorized in this order; and, if necessary a sixth line that would show total wells. I do not understand how "overlapping" works (I think I know, but not well enough to post), and I did this quickly, so there may be errors. The purpose is not to be absolutely correct. It is to give newbies an understanding of just how staggering the Bakken is going to be for some mineral owners. It is very possible for a mineral owner who now receives royalties from two wells, one each in two non-adjacent sections, could eventually be receiving royalties from as many as 40 wells or more, based on this single NDIC order:
Paragraph 97
sections 36 and 26
1280-acre
Zone XIV
6 wells each
12 wells (because the two sections will be in separate drilling spacing units)
Paragraph 137
section 36
1280-acre
Zone XXI
10 wells
Paragraph 163
section 36
1600-acre
Zone XXVI
10 wells
Paragraph 178
section 26 and 36
2560-acre
Zone XXIX
1 well
Paragraph 188
section 26
2560-acre
Zone XXXI
2 wells
Paragraph 193
section 26
3200-acre
Zone XXXII
2 wells
Paragraph 199
section 36
3200-acre
Zone XXXIIII
11 wells
So: 11 + 2 + 2 + 1 + 10 + 10 +12 = 48 wells
Bruce,
ReplyDeleteI have no concept of what "zones" are in the Bakken. Does the term zones refer to the different horizontal layers in the Bakken and three forks or is it some type of vertical separation. Is zone a term widely used in the Bakken or is it a term that only some companies use? I believe the 2 wells in the 2580 spacing unit are the wells that will drain the oil under the section lines that can not have a well placed in that location under a 1280 spacing unit. Is that somewhat correct. Thanks. Kevin
I will do a stand-alone post on how I understand "zones." I did not want to do it because it's beyond my expertise, but I'm probably pretty close to having it right, and once posting it, the experts will quickly let me know how wrong I am. LOL.
DeleteFor now:
"Zones" in this context is an administrative area designated by the North Dakota Industrial Commission that sets the rules for oil and gas exploration and production in North Dakota. It is analogous to the Railroad Commission in Texas which has the same role.
"Zones" are shorthand for specific sections, or portions thereof, in specific oil fields. For example, Zone I might refer to sections 3, 4 and the east half of section 5, in a specific township (or townships) in a specific field, such as the Sanish oil field, and, of course, specific to a certain pool, such as the Bakken, or the Madison, or the Red River.
Having this administrative shorthand makes things a lot easier to track: instead of referring to the rules affecting a well in Section 4, Township 999 North, Range 99 West, Doo-Dah oil field. one can simply ask what are the rules for Zone 1 in that oil field. The rules in Zone 1 affect all the wells to be drilled in Zone 1.
The confusing thing for many folks, but now becoming clearer for me, is that certain sections can fall into multiple zones. For example, section 12 could be in Zone I for 640-acre spacing, Zone 12 for 1280-acre spacing, Zone 23 for 1600-acre spacing, and Zone 25 for 2560-acre spacing. And you can see why: a well in 640-acre spacing might have different rules than a well in 2560-acre spacing, on location, etc.
Hopefully that helps. But I will post a stand-alone post later. But, no, Zones are not different horizontal layers in the Bakken; Zones are not unique to different operators.
Yes, the two wells placed in the 2560-acre spacing unit might indeed be placed on a section line that would otherwise be "orphaned" by 1280-acre spacing. The two wells on that section line would pay royalties to those who minerals in the four sections abutting on that section line.
One caveat, they will receive the most % (and money) from the smaller acerage combinations than from the larger ones. For example, Paragraph 199 covering 3200 acres is going to pay out less to these people than the Paragraph 97 covering 1280 because the % of their interest is a bigger ratio w/1280.
ReplyDeleteI mention this just so they don't go off and spend the money before they really get it flowing in--although it will still be a lot of money!
Yes, thank you. For me, it is not the "actual money" involved that is the big story here. The big story is how quickly this becomes very, very complicated. If a mineral owner has trouble understanding / reconciling monthly statements for one well, imagine the challenge with two wells. Then four wells. Then 12 wells. Then 24 wells. Then 48 wells. I've talked about the importance of getting ahead of this tidal wave before the royalties payments start coming.
DeleteBut yes, you are correct. An acre in 2560-acre spacing is worth 1/2560th and an acre in 640-acre spacing is worth 1/640th. But if the well in the 2560-acre unit is a gusher and the well in the 640-acre unit is dry .... 1/640th of DRY is still zero.
The money is staggering. The hours required to track this using pencil and paper will also become staggering.
Bruce. Love your blog. Where can you find "Order #XXXXX" information? We do have interests in the Big Bend field and have two producing wells now with three more ready to produce with Slawson. I would like to "speculate" on how many wells have been authorized for our section(s).
ReplyDeleteThanks,
Trevor Dahl
You can phone/write the NDIC and ask for a copy of the order. It's available on the NDIC site for the higher subscription price for which I do not subscribe to.
DeleteI have a PDF, and I can send it to e-mail addresses if anyone wants it. I don't do anything with e-mail addresses. They are saved within the Yahoo e-mail system. My contact information is easily available at my "profile" near the bottom of the sidebar at the right.
As far as I know, once the order is published it's public information and not copyrighted.
have not seen any other company monthly statements, but can say that I do appreciate Slawson for the simplicity of their statements. Maybe simplistic is not the right word- Straightforward would be better. easy to read. More wells simply means more pages on the statement.
ReplyDeleteI don't own any minerals so I can't comment on royalty statements, but it is interesting how well some companies do and others don't when providing statements for their customers/investors.
DeleteThat's nice to hear about Slawson. I have no personal experience with them, but through years of blogging about the Bakken, I have a lot of appreciation for Slawson. They seem to have their act together.
Slawson has been an outstanding company to deal with. When we first signed our lease in 2008, it was with Windsor Energy Co. They sold their leases to Slawson and we have never regretted it. We had title issues in the beginning and Slawson kept in touch with us on procedures and timelines. Any time I have a question, they answer me within two business days, usually next day. Great company and am excited for their forward thinking. And yes their statements are very easy to interpret. I just wish they had direct deposit. Oh well, can't have everything.
DeleteTrevor Dahl
Very, very nice. It's been an interesting company to follow.
DeleteDirect deposit would be nice ut as a private, family run business. It would probably put half the family in the accounting dept out of work. I can live with having to actually deposit the check at the bank.
ReplyDeleteInteresting info! Is there anyone in charge of making sure that those people with interests in varying zones receive their compensations? Or do the rely on the good will of the drillers or distributors?
ReplyDeleteI'm sure it's like everything else in life: trust but verify.
DeleteThe important point I was trying to make: if one has mineral rights to one well in the Bakken, it is likely that one will have as many as 56 wells in some cases. (See most recent hearing dockets -- July, 2014).
Unless one really, really knows how to track royalties from more than two (2) wells, I strongly recommend professional assistance.