$/acre to buy surface rights - saltwater disposal facility

Reeves county section 27 block c6
I own 160 acres, noble energy wants to buy 10 acres for a saltwater disposal facility. Are there risks, is this. Good offer? They only need -0 acres but should I sell all 160?

Why would you sell all your surface unless you get a lot of money? Is the 10 acres next to a road? Will Nobe need to obtain a pipeline easement to bring in the saltwater? A easement for an electric line? A road easement? Are you limiting the sale to 10 acres or also granting Noble use of adjacent surface? Are the 160 acres situated for payments for well pad and related easements? You should consider consulting an expert to be sure to get the best deal in the long run.

I totally agree with the advice that Tennis is giving you!

Regards,

Jimmie

I don't have access to the RRC or GLO site now, but are these acres public school lands? if so, selling any surface acres will lose any minerals beneath. Be sure to check this out as well.

There can be a lot of money involved disposing of saltwater. Looks as if you could be paid a % of each barrel injected in YOUR property. I'll be very interested in any replies to this. We continue to learn.

As someone experienced in the disposal business, here are my thoughts: Typically, a major operator such as Noble will want to own the land outright. Reason being is simply more profit on their end. Surface owners can stand to make a lot of money if they keep surface rights and agree to terms for a disposal lease on their property. However, that is more likely to happen for larger land owners, i.e. someone with a lot more acreage and wells will ultimately have more clout with a big operator. I’ve seen many landowners request a lease as opposed to selling and the SWD operator will simply move down the road and find someone who will sell, but it sure doesn’t hurt to ask. If you were to sell or lease your land, yes, there are risks... Even though with today’s technology the risks are minimal, they are still there. I've been on locations where SWD’s were hit by lightning and the cleanup looks like a bomb went off. With that being said, I still have yet to witness one that has contaminated the land owner’s water wells or water table. I would suggest proposing the possibility of retaining your surface and saying they can build a disposal on your property if you can get a royalty. Disposal royalties can come in different forms, some operators will simply pay a landowner a few cents per barrel of water disposed. Most lease terms I’ve seen have the operator paying the landowner a % of revenue coming from both saltwater disposal AND skim oil, which is where the real money is. Skim oil is the oil removed from the saltwater on location before it's disposed downhole. The operator can then sell that oil to market at the same price normal non-skimmed oil is sold at. The average skim ratio on Permian disposal wells can range anywhere from 1-3% maybe 5% if the SWD is taking a lot of flowback. Flowback is when newly drilled wells are ‘flowing back’ their frac fluids and will typically hold a lot more oil than produced water, which is the water a well will produce once it is in a steady production cycle. Here’s an example: If an SWD disposes 300,000 barrels of saltwater a month and the skim ratio was 2%, which are both realistic numbers in the Permian, that would equate to 6,000 barrels of skim oil per month. I’ve seen disposal royalties range anywhere from 3% to 10% on skim oil and water, although I would think the lower end would be much more realistic in today’s market. Let’s say you had a 3% royalty on their 6K barrels of skim oil sold at $45 per barrel… You would see roughly $8,100.00 per month on gross royalty income. Also keep in mind the skim numbers will go down once new drilling in the area is done and would therefore reduce your royalty revenue as well. If you were to sell your surface, you should request Noble compensate you for any flow lines running across your remaining property, which is highly likely since this SWD would be servicing their surrounding wells. The SWD business is still in rebound-mode in a lot of places, but if there is anywhere it’s going to be profitable in today’s market, it’s in the Delaware Basin. Best of luck to you.

SouthTex, thank you for a fantastic reply!!

Bob Malone

Thank you for an exceptionally thorough response and explanation SouthTex! So very appreciated, there is obviously a lot to learn about this aspect of oil and gas production.
These are public school lands, with. 3 wells, located along a road. i was told by the Landman for Noble that the mineral rights would still be owned by me, but it’s interesting that James Marrow replied that the company would also receive the mineral rights if surface were sold!
I am interested in leasing to them, not selling, after hearing these responses.
We also own mineral rights only on another tract of 160 acres also within this section 27 block C6.
Would this saltwater disposal well interfere with current production on 3 wells?

I’m sorry if I confused you. I meant for you to check that your property is not a Texas Relinquishment property. That is land sold in the 20’s-30’s, where the state sold surface and kept minerals. As long as you own the surface you are the state’s agent and get 1/2 bonus and royalties. I have several tracts like this and often “ranchers” just want to buy my surface for cattle–right!
I’m just suggesting you check on the General Land Office website to make sure your property is not in that category. Again, I’m sorry to have confused the issue

No problema and happy to help. I looked into it and your property doesn't appear to be under Relinquishment Act Lands. Therefore, lucky you! And small world, because I pass your property often since I'm in Reeves a lot for work. In my opinion, this is a great area for a disposal well. There are already several SWD's just west of you and every time I pass them I see lines of vacuum trucks pulling in/out. Vacuum trucks haul off a newly drilled oil/gas well's water during the flowback phase. Most of those disposals to your West are public ones, meaning they can dispose all O&G operator's water in the area. Noble's SWD would more than likely be private and used to manage only their disposal needs, which could potentially mean smaller volumes being sent to it but maybe not. This is a common practice for larger operators such as Anadarko, EOG, Noble, etc. they will typically want to operate their own disposal wells. However, there’s so much activity in Reeves right now that public SWD’s like the ones I described are absolutely necessary to meet the demand. Regarding your question if this would interfere with current production, no, I don’t believe it would. Maybe offset oil/gas wells would be temporarily shut-in while Noble drills this SWD, but that’s about it. There are two types of disposal wells, a W-14 classification, which disposes into a Non-Productive zone and a H-1 classification, that disposes into a Productive zone. Noble's SWD would probably be a W-14 type well and would dispose into the Cherry Canyon, a very common disposal zone in Reeves ranging anywhere from 4,000 to 7,000 ft. deep. The SWD two miles West of you injects into the same zone and is permitted to dispose 30,000 barrels of saltwater per day!! But keep in mind, that does not mean it can take those high volumes. Think of it like a fishing pole in a rod holder on a boat. If that boat was going full speed 24/7 and never slowed down, sooner or later that fishing rod would fall apart due to that constant pressure/stress. The same concept can be applied to a disposal well. I wouldn't be surprised though if those down the road from you could do 10,000 barrels of saltwater per day and they probably are currently. Hope this helps. The way I see it, the more you can learn on it, the better.