640 versus 1280

At a recent Commission hearing, OXY USA asked to create 1280 spacing units (extending the Dimond field) and drilling 6 wells on each. The Commission sent them back to look at the economics of 640 spacing instead.

We have about 136 acres - and can't quite figure out which deal would be better for us. Any comments?

Your royalty on a 1280 spacing unit will based on (.10625). On a 640 spacing unit it will be based on (.2125). Do the math using plugged in figures and this will tell you the answer.

Thanks Charles. Do I do this based on 6 potential wells for 1280 versus 3 wells for 640? Or was the Commission trying to get them to drill more wells on a 640? (more potential tax revenue for the state I’m sure)

If it were me, I would figure it on one well at a time. There is no sure bet how many wells will be drilled. Alot of things could change in the years ahead.

Karen Bunting said:

Thanks Charles. Do I do this based on 6 potential wells for 1280 versus 3 wells for 640? Or was the Commission trying to get them to drill more wells on a 640? (more potential tax revenue for the state I'm sure)

If the amount of oil were the same, the 640 spacing would give you TWICE as much money, but obviously they don't go as far horizontelly, nor would they do as much fracing!! Test it in this forumula; the second is for oil!

http://www.mantralandservices.com/PageDisplay.asp?p1=3655

If you ended up with all of your acreage in a 1280 unit, that would probably be better provided it actually gets 6 wells drilled. If a 640 unit allows for 3 wells and all your acreage is in that unit, then there are fewer wells than in the 1280 unit. I personally think it would be better to share in 6 wells than 3 wells, though your royalty interest in the 640 unit would probably be twice the amount in the 1280 unit. All of it depends on how good the wells are in each unit. If the wells in the 640 unit are poor, better to have your acreage in the 1280 unit. If the wells in the 640 unit are big wells, you might want that. But, you really can't know in advance how good the wells are going to be. That's the rub. I'd go with the 1280 myself thinking that the average might be better in the long run than 3 wells in a 640.

I think they would do proportionately about the same amount of fracking per foot. Extended long laterals perform poorly after the natural pressure is gone. It's simple physics, for every drop of oil water and gas produced close to the wellhead the less pull at the end of the line. In other states where they are not trying to hold the maximum amount of land, but still having to drill to the same depth, there are alot of wells drilled with a lateral shorter than 1 mile. The greater amount of fracking in the extebded long lateral, if it isn't really paying off after the natural pressure is gone, may be a big waste, especially since stimulation costs are now about 80% as much as the cost to drill the lateral. I think the shorter long lateral [ not the XLLong lateral ] will make a comeback after the land grab is over.

Dctex99 said:

If the amount of oil were the same, the 640 spacing would give you TWICE as much money, but obviously they don't go as far horizontelly, nor would they do as much fracing!! Test it in this forumula; the second is for oil!

http://www.mantralandservices.com/PageDisplay.asp?p1=3655

Well the big problem in Eastern Montana right now is a shortage of Fracing crews. Our well, drilled by Brigham(Statoil), finished in January, is still waiting for Fracing, and another well finished AFTER ours by EOG is getting fracing tanks as I write this. Some wells are taking as much as 130 days before being fraced, and this is a concern for the oil companies that have that money tied up. Amazingly they got almost 4,000 bbls of oil out of ours before a workover rig starting detailing it for fracing; of course we won't see that money for many months! Patiently waiting for a Halliburton Fracing Crew

Dctex99, I hear you on the fracking. I have some wells that waited 9 months for fracking after they were drilled. The way I felt about it was I would have been happier if my oil was produced 5 years from now, but I was force pooled, and after the well was drilled I figured if they were in such a hurry to produce the minerals and they already started, they should go ahead and do so.

Dctex99:

Have you heard of any drilling (recent) in the T30N;R58E area? I was informed that either Slawson or XTO was preparing to drill. Where is the well, you referred to in your post located? Looking at the overall permits for the Eastern MT area, it appears Richland County is much ahead of Roosevelt or Sheridan Counties. My main concern is in the T30;R58 & 59 areas. I'm just hoping some great wells occur in this Eastern MT area in order to really get the ball rolling.


The XTO State 42x-36 in 28n-r57e is supposed to be drilled this spring; but no signs of activy yet; it will replace the Sundheim 2-35 that is only running for HBP!

Dctex99 said:


Dctex99:

Thanks for the info on XTO. For some reason, I was of the understanding that Slawson would be drilling in this area. I'll just try and keep up to date over the next few months on how the drilling acitvity is going in this Eastern MT area. With ND still involved in heavy drilling activity, it could be well into 2013-14 befor this area sees any extensive drilling activity.