Q & A -- July 29, 2022

Updates

July 30, 2022: the original post was in reply to a reader who had a question about the Bakken. Instead of responding by e-mail, I replied with a post on the blog. That is generally how I do things. I don't want to get into an e-mail relationship, with some exceptions.  I received several notes regarding my original post, most regarding the "impossibility" of any small mom-and-pop Bakken mineral owner having mineral rights across all of western North Dakota.

I followed up with the individual but want to maintain anonymity so will provide just enough information to show this was accurate in this reader's case.

The reader has mineral rights in the following counties in western North Dakota and eastern Montana:

• Divide
• Renville
• Richland (Montana)
• Roosevelt (Montana)
• Valley (Montana)
• Billings
• Golden Valley
• McKenzie
• Dunn
• Williams

In many of these counties, the reader owns multiple parcels. In many of the counties, the reader has mineral rights in only one section, and generally amounts to only a net-mineral acre or so in any one section. I have no idea what the particulars are.

For example:

• Divide County:
• Township XXX North, Range XXX West
• Colgan oil field
• section XX: NW1/4

The reader has never farmed and owns no surface rights. The reader obtained some/many of these net one-acre minerals through "barter" to pay for goods and services in a business unrelated to oil. Others were bought from individuals on a cash basis; some may have been bought through quarterly states lease sales. Again, I don't know the particulars. 

Folks seem to forget that one could buy mineral acres for as little as a dollar in North Dakota and lot of that was done in the 1950s and 1960s. The state continues to hold those quarterly lease sales; I post them every quarter. And some mineral acreage can still be bought for $2 / acre. 

Disclaimer: the information provided by the reader is accurate. My additional comments may be incorrect in some places; I don't understand all there is to understand about minerals, but I'll stop here; this is getting pretty far afield. 

The important point is not who owns minerals and how they were obtained. The reader simply wanted to know how long the checks would last and that was my focus.

Later, 8:11 p.m. CT: see comments. A reader had a question about the definition of a "drilling unit." On the blog I use the terms "drilling unit" and "spacing unit" interchangeably. Many folks do. If one reads the monthly NDIC hearing dockets, one will see what is meant by a "spacing unit" ("drilling unit"). The standard "spacing unit" in the Bakken is now 1280 acres; in the early days, the standard "spacing unit," or "drilling unit" was 640 acres. Hopefully that clears things up. 

In the process of going back to see if there was a nice article on "spacing units" and/or "drilling units" I came across this Richard Zeits article over at SeekingAlpha: Bakken: the downspacing bounty and birth of array fracking." Unfortunately that article is behind a paywall. One may get a number of "free" articles each month; if so, one may get lucky and access this article sometime down the road. More here.

Another reader was surprised that small mom-and-pop mineral owners might own mineral rights in spacing units across the entire Bakken. In the 1950s and 1960s, well before the Bakken revolution, it was not unusual for folks to "trade" a few mineral acres or pay for goods and services with one or two mineral acres. The result was that some some small mom-and-pop mineral owners ended up with minerals across the Bakken. It is/was a very interesting (and unique) phenomenon.

Original Post

From a Bakken reader today: the reader says he/she receives royalty checks from oil companies in the Bakken. She/he asked how long those checks will keep coming.

Q: how long will Bakken royalty checks keep coming?

A:

• short answer -- 30 years.
• longer answer -- 70 years.
• longest answer -- "forever."

1. Whether you, the reader, receives royalties for another 30 years or another 70 years depends on where you have minerals. If you have minerals in one or two drilling units, you will receive royalties for the next 30 years, assuming you are receiving royalties now.

2. If you have minerals in multiple (greater than 20) drilling units spread across the four Bakken counties (Williams, Mountrail, McKenzie, and Dunn), you will be receiving royalties for another 70 years. Probably longer.

3. The reader did not ask about whether royalties would increase or decrease, so I won't answer that question.

4. Now, for that "longest answer." This is a no-brainer. If mineral owners re-invest their royalty checks (a little, some, most, all) into dividend-paying equities, those "royalty checks" will pay you forever.