We received a request from Crown Rock to give them 1/2 our ORRI on certain lands in Midland County T2S Blk 36.
Later in 2023 they say they plan to drill some horizontal wells crossing our interests. They say they own some WI outright, and other WI owners will expect to be carried, and they say with the existing ORRI burden on the area they do not see it profitable to produce in our areas.
They have given us two options.
Give them 1/2 our ORRI, or
When they drill they will mark our area as NPZ non-perf zone and our interest will garner no revenue at all from the wells. I don’t see anyone able to go back to that area to produce it at a later date.
Has anyone else experienced this issue? How were your situations resolved?
Can you suggest other options?
Do you have applicable experience negotiating this type of deal? Any pointers or tips?
TIA!
I am trying not to laugh at the audacity of this demand. It is not your problem that other unspecified WI are refusing to participate. Do they own 1% or 50% of the WI in the section - that tells you how much this burden is. What if the WI later decide to participate - do you get your ORRI back? It is a real problem for an operator to have NPZ in the wellbore as that would mean that none of the minerals would be paid royalties either. Maybe it depends on how much gross acreage underlies your ORRI - e.g. 5 acres or 640 acres - to see how many feet in the horizontal lateral will supposedly end up in NPZ. Has Crown Quest given you written details of the excessive burden, including a financial analysis? Would this apply to multiple wells or only one well? Could your ORRI come back in after payout? What if Crown Quest sells out in the next couple years and makes money with the ORRI? You need to post the section and other information in order to get feedback from people who know about other wells in the area.
I was contacted by an operator, not crownquest, who basically said the same thing. Blah blah…these wells in fringe Midland Basin are not economic. The only way to make them economic is for you the mineral owner to give us half of your royalty in that wellbore. If enough mineral owners do that and pump our NRI, we will drill the well. If they don’t, then we won’t. They were looking for some folks to jump on grenade to save the squad.
Its all big leases held by operator in my situation so nobody is making up some NPZ story. Which seems like it should only work where there are some small gross acre leases. But otherwise, I get the basic point of the operator in both cases. The wells aren’t too great. Half is better than nothing. But its a game of chicken basically.
Having an ORRI on a lease held by a WI partner gives you a bit less leverage in a game of chicken IMO. You could agree to something with the operator and still get boned. It sure seems like in an NPZ situation the operator would have more incentive to talk to the royalty and WI owners in the tract that is not participating than the ORRI owner.
Think about this a little. They have to declare a NPZ, drill the well, and then isolate the NPZ from the completion. Essentially the well costs the same, but they forgo the production from the NPZ. They also have to support this position at the RRC and potentially later in court. Call their bluff.
I get your point and who doesn’t love Rockford Files.
“Isolating” an NPZ from the completion is trivial though. You just don’t put any perfs in those parts of the lateral. That’s it. Hence NPZ. If the NPZ is big enough they definitely lose production.