There is a hearing on July 24th 2014 regarding Statoils application to amend the field rules in the Bakken (see cases #22673 & 22668 on the NDIC website) to create overlapping spacing units. What would this mean to mineral owners and to Statoil and other oil companies if this is approved?
22668 to allow the creation of 2560 acre spacing will mean that eventually 2560 acres will be held by a single depleted well. Some people say that it allows the drilling on section/spacing line but that is not true, it's just putting a rosy glow for people who don't know that they have been drilling on boundaries in Oklahoma for a long time without creating "superspacings". They already could drill on spacing lines in ND because overlapping spacings are allowed and will eventually be done on section lines where there are two different operators by cooperative agreement. The 1280 spacings are already huge, because the operators wanted them and the state went along, 2560 is larger and there have been larger spacings even than these which have been proposed.
22673 sounds like they just want to extend the field boundaries with possibly getting the state to set the spacing size by the stroke of a pen by an un-elected official as was done with the massively oversized 1280 spacings in the beginning.
Some might think it's capitalist vs. socialist, capitalist being pay me for oil extracted from my property and socialist being pay everyone in a large area from oil extracted from my property and at some dim, distant future point in time, I might receive a royalty from the production of minerals from the property of people who have definitely benefitted from the production of my minerals right now, diluting my royalty. Of course if that other well is never drilled, you don't get your money back.
Look at it this way, the larger the spacing, the more diluted your mineral owner royalty becomes. The operators pay does not get diluted because he gets the same revenue interest he always did from each well and with the larger spacing he gains a business advantage at no cost. I can't quantify how much this business advantage is worth to the operator because if he never drills another well, the point is moot to the operator. On the other hand, if another well is never drilled, the mineral owner whose oil was produced and whose royalty was distributed far and wide to those whose oil was not produced, lost 50%, 75% possibly more. If someone thinks this is a good deal, they need not even wait for a well, they can send me 75% of their earnings right now and in 10 years there is a CHANCE that I will send some of it back and they may recover the total amount over the succeeding 10 years. Just think, in 20 years you might even get to the break even point of what you should have had from the very beginning! I know this is an extremely generous offer but I consider it my civic duty to make it. This was of course tongue in cheek, I do not want anyone to send me their hard earned money. I only want for us to all be fairly paid for the production of our minerals and what is happening now is not cutting it and what is being proposed is not going to make it better, far from it.
The industry people like to say that the overlarge spacings gives you the mineral owner a piece of a bigger pie, when actually it give you a much smaller piece of a potential pie that may never exist but your royalty is going to be reduced/taken now if your minerals are being produced.
Some people would say that on the bright side that your minerals may not be produced and you could receive royalty from the production of someone elses minerals. I don't know about you but when someone offers me something of value for free, I start looking for the downside because how often does free really equate to free? Often it's only free because it was taken from someone else, like our national debt was taken from people yet to be born. Free money isn't really free.
What can you do about it? As a mineral owner, probably nothing, the time to nip in the bud the rubberstamping of overlarge spacing is long past.
Thank you Mr.Kennedy for your reply. The situation is much as I expected. The only thing mineral owners can do is bring a class action against the oil companies and that would take some serious cash and would probably fail. As long as we have people making decisions that benefit only those special interest groups with money this is the type of thing we all have to live with. Kind of like living in a banana republic.