A New Wrinkle In The Bakken -- May 25, 2020

Updates

From a reader regarding the original post.

First regarding the Madison well --

A lease is ‘HBP’ [held by production], whether it is a Madison well OR a Bakken [or any other formation—Red River [Bowman/Slope has lots of those]].

The difference as to the lease being held may be whether the lease is within a spacing unit for the Madison [generally a smaller spacing unit but not always anymore] or within a Bakken spacing unit.

There are a lot of variables depending on the lease wording. Further comment: Many of the more current leases have a ‘force majeure’ clause. Force majeure is ‘an act of God’ in general BUT has expanded.

Now, the first reply regarding this note, which came in a comment:

Answering the lease question. Most companies or leases are based on a 12 month non-production clause to nullify the lease (Of course each lease is potentially different.) This is the trigger to give the lease back to the original owner. Many companies will, to maintain a lease, produce every ten to eleven months a small amount of oil, market said oil, and that resets the clock. Thus keeping the lease under their control.

If you wish to get your lease back, it would be best to seek council, This would also set in motion the requirement to plug the old well and reclaim site.

I think before all is said and done that many sites will be Tier one and Two, for five to seven layers so getting better terms may be in the best interest of owners.

Force majeure: the reader also provided this:

Companies have been known to take a very liberal approach to defining force majeure if it fits their purposes. Some companies will send a letter to the mineral owners whose leases are declared by them to be extended by ‘force majeure’.

I don’t know if it is required to notify by letter—once again depends on the lease language and/or company policy.

The ‘Bakken Owner’ comment about seek ‘counsel’ is really a mineral owner’s best bet—however, once again THAT means finding an attorney ‘well versed in oil and gas law’. That is a challenge—another whole different discussion!!!

I have seen some leases wherein ‘low prices’ [with no definition of what is low price] are recited as a force majeure event.

Keep in mind that NDIC rules of one year, etc, are not necessarily sufficient to cause a lease to be extended when there is a lack of production.

NDIC rules do NOT affect a lease as to whether it is extended or not when there is no production—lease extension without production depends on the lease language

This discussion could go on and on as to this or that occurrence and/or interpretation.

Summary: breaking a lease by a mineral owner will require $, persistence, and determination—and will seldom succeed -- IMO.

Comment: I agree completely. It will take a lot of money, persistence, time, to "win" this case. The oil companies have been at this a lot longer than any of the rest of us and have certainly seen "it all."

Original Post

 

This is well beyond my "pay grade." I have never followed the "language of leases" in the Bakken. I don't think I've ever seen a lease except maybe a long, long time ago when I was visiting Williston. I never paid much attention if I did.

Some basics:

• the concept of "lease held by production";
• early on, operators put in a at least one producing well to hold their leases;
• as more wells came in, there was less chance of losing a lease due to lack of production;

However, and here's the wrinkle:

• now that the Bakken is shutting down, there are a few "loners" out there;
• "loners": where a single well is still holding a lease (generally a drilling unit of 640 acre or 1280 acres) all by its "lone self";
• what happens if that "loner" shuts down? 

I don't know. Maybe readers can enlighten me.

I know the state has rules about how long a well can be inactive before it must be plugged and abandoned. At that point, if it's a "loner," does the operator lose its lease?

My understanding is that the state is quite lenient in the length of time a well can be shut down, and waivers can be awarded.

But what about contracts or leases between the operator and the leaseholder? A reader informs me that his lease on "a loner" says that if there is no production in 120 days, the lease is null and void. His "loner" has not had production in well over a 120 days.

The reader wonders how this affects the lease on that drilling unit?

Again, this is well beyond my "pay grade." I don't follow mineral leases; I don't visit social media sites for mineral owners. The answers may be obvious. I don't know. A reader brought it to my attention. It's not something I'm generally interested in regarding the Bakken but it seems to be an interesting question.

More than likely, I'm missing something obvious.

But I'm always learning something.

One last thing: there is a Madison well in that section that is still producing. I don't think a "Madison" well holds a lease by production for a "Bakken" well but again, I've long forgotten (or never knew).

***************************************

Here's A Great Example 
Of A "Loner"

Why hasn't EOG permanently abandoned this well? This well was drilled back in 2009; more than a decade later it has produced less than 30,000 bbls, and yet it remains active.

• 17996, 58, EOG, Burke 9-10H, Stanley, t7/09; cum 30K 3/20;

Recent production:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	3-2020	15	105	139	318	154	0	3
BAKKEN	2-2020	29	105	100	582	294	0	0
BAKKEN	1-2020	31	90	99	634	314	0	0
BAKKEN	12-2019	31	110	108	657	314	0	0
BAKKEN	11-2019	30	106	106	610	304	0	0
BAKKEN	10-2019	31	124	119	636	314	0	0

Production dates of interest:

• 2/18 - 6/18: off line / no production for 113 days;
• 7/13 - 9/13: off line / no production for 63 days;
• otherwise, has never gone a month without no production

The graphic:

***************************************

Another Example Of A "Loner"

The well:

• 17946, 86, Koda Resources/Newfield, Trigger 1-31H (1 sec), Fertile Valley/wildcat near Grenora; on my watch list; this is too bad; the rumor was that this was a "good" well; 47K 3/20; 

Recent production:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	3-2020	28	174	229	288	12	0	12
BAKKEN	2-2020	26	149	237	258	2	0	2
BAKKEN	1-2020	31	203	220	227	1	0	1
BAKKEN	12-2019	31	178	219	358	170	0	0
BAKKEN	11-2019	30	185	0	348	305	0	5
BAKKEN	10-2019	31	223	465	453	313	0	3
BAKKEN	9-2019	23	240	0	414	340	0	124
BAKKEN	8-2019	12	82	238	141	115	0	0
BAKKEN	7-2019	31	266	218	512	310	0	0

The graphic: