Reader Has Question Regarding Selling Minerals In The Bakken -- March 16, 2019

Wow, this makes my day. I can vicariously experience what it must be like to get an offer for one's minerals.

A reader wrote to ask my opinion. The reader wrote that landmen had recently approached his family about buying their minerals. The reader gave me the location of their minerals and asked whether they should sell. Here was my reply -- specifics have been redacted for obvious reasons.

I am posting this because I'm sure the reader would like others to weigh in on his/her question.

I am sure landmen will not appreciate my answer. I apologize. I have very positive feelings about landmen. Do not take that out of context. 

So here goes, minimally edited from the reply I provided the reader:

Thank you for writing.

Before we get started, there is no hurry to sell. The oil isn't going to go anywhere.

Years ago, when I first started to blog about the Bakken your question came up fairly often. I answered that question on the blog. My answer received little pushback at the time. Since then -- more than ten years of blogging -- suggest that the original answer still holds.

Note: this may be a long note. There will be typographical and factual errors. I have no hidden agendas. I have no formal training or experience in the oil and gas sector. I have no formal background in financial matters. This is simply my opinion.

1. With regard to mineral rights, my recommendation has not changed over the years. Three questions for the mineral owner: if the mineral owner has no heirs, is age 40 or older, and/or desperately needs the money, then the mineral owner might consider selling his/her mineral rights.

2. If the mineral owner has heirs, is age 40 or younger, and/or does not desperately need the money, most folks I have talked with over the years would almost shout: don't sell your minerals.

3. The fact that you mentioned that the mineral rights might be under the river or the lake suggests someone was using that as an argument to sell. From a technical / drilling point of view, it does not matter. They are drilling horizontally under the river/lake, and there are currently five horizontals in the sections you mentioned. In fact, I would assume the mineral owner is getting royalties from these wells.

4. The fact that the minerals are under the river/lake may be affected for legal / administrative reasons. I have absolutely no experience in this issue. There has recently been a lot of talk about minerals under the Missouri River; the state has passed a law clarifying the ownership of these minerals (generally in favor of the state if I understand things correctly), and the court has ruled the law constitutional. My hunch: this issue is still a "muddy" issue. Pun intended.

5. Having said all that, if a landman says you have mineral rights, that's probably accurate. So, let's go from there. Let's just look at the area under discussion. The rest of the discussion is only about the geographic area and the geology; it has nothing to do with financial / legal / ownership issues. This is just about the area as a potential site for drilling.

6. The four sections that you mention are probably in / near some of the best Bakken possible. Your four sections are in the _______________ oil field. The ______________ oil field is tracked here but not updated in a long, long time: _______________. That note was written [more than five years ago: note this in the very first paragraph: "it is in the best part of the Bakken."]

7. There are [several] horizontals that draw oil from the four sections that you mention. They are all _____ wells (a very, very good operator in the Bakken, with deep pockets. They were drilled early on in the Bakken -- most likely to "acquire" / hold mineral rights. These were "exploratory" wells to see what might be there, and they were drilled, as noted, to "acquire" / hold mineral rights. The operator will hold the lease to those mineral rights as long as the wells produce oil, no matter how little production.

8. By the standards of the early boom, these were "okay" wells. But with new technology and new completion (fracking) strategies, the landmen approaching you "know" there are going to be spectacular wells drilled in these sections (the wells may be sited off "your property" -- the wells can't be sited "in/on" the water, but the horizontals will reach those sections under the water from the north or the south with no difficulty).

8. As an aside, your sections are very, very close to the ______________ oil field, which may be one of the top five oil fields in the Bakken. The _______________ field is tracked here: _________________________.

But this is an interesting bit of trivia, written back in 2010: [one of the most productive wells ever drilled in the Bakken is located "near" your land.]

That well is ____  miles to the ____________ of the midpoint of the four sections you mentioned and is a  short lateral. This well would have likely produced twice this amount of oil had it been a typical "long" Bakken horizontal.

The _____________ field seems to be unique in producing some incredibly good wells and the _________________ field has not produced any wells of this magnitude, so I'm not suggesting this is going to happen, but I cite it to point out how good this area is believed to be.

9. One might ask, if this area is so good, why has there not been more drilling? Two reasons. First, in the "boom" time was of the essence. Oil companies were drilling as fast as they could to "hold" their leases. Once they "held" their leases by production there was no hurry to drill their land. Second, _______________ has deep pockets. They have no urgency to drill wells just because there is oil there. All oil companies are looking for new plays. They "know" what they have in this area, and they can afford to wait, while focusing elsewhere. There are many other factors why this area has not yet been developed but this note is already too long.

10. Bottom line: if the owner has heirs, is 40 years old or younger, and/or does not desperately need the money, I would not sell. Having said that, there is no guarantee that there will be any drilling in this area in the next 20 years and no guarantee that the wells, if drilled, will be "good" wells, but landmen don't go after minerals just to lose money.

11. Again, personal opinion only.

More to follow if you have questions.