Our minerals are leased to Chesapeake in Converse County Wyoming. We are now part of a recently formed BLM Exploratory Deep Drilling Unit. The unit is small ( 9 Sections ) in T34 R69. The first well is to be drilled within 6 months of the July 28, 2011 approval date. That well is located in the West Half of Section 20 on Federal Minerals and our minerals are in the East 1/2 of Section 20. From looking at the site map for the well, the well will be drilled about 1000 - 1100 feet West of the edge of out minerals. The well will continue South and parallel our minerals in the East Half. In other words, the well bore will stay about 1000 - 1100 from our minerals as the well moves South into Section 29. The proposed well will stay in Federal Minerals as it proceeds South.
The Unit Agreement has language dealing with Participation After Discovery. If anyone has any experience or knowledge on how participation is actually determined in BLM Exploritoty Units, I would like to discuss this topic. All help is appreciated.
Federal exploratory units aren't really that complicated. The unit is often proposed based upon siesmic data of a prospective structure. The approval of the unit will require a well be drilled to test the struture within a fairly short period of time or the unit will terminate. Once the discovery well (or sometimes after more than one discovery well if the intital well data is inconclusive) has been drilled, the operator presents the well data, other geologic and geophysical data to the BLM and an initial participating area is established. The intent is to include acreage within that PA that is capable of being drained by the discovery well or subsequent development drilling to the same objective horizon . Production is shared on a surface acre basis within the PA. In general, much more weight is given to well data than to geophysical or geological models that are not based upon hard evidence. Subsequent wells (or seismic) can provide data to expand, contract or create additional participation areas. Eventually, when new drilling which can provide data to expand the participating area has ceased, the Unit will eventually contract to include only acreage that is included within productive PAs being drained by the productive wells. Additional exploratory wells drilled outside the PA to different depths or different structures will have their own PA assigned to them if successful.
Here is a copy of the standard Federal Exploratory Unit Agreement. Take a look specifically at articles 10-12 which deal with how acreage is assigned to a PA and how royalties are allocated. This should answer your questions.
Thanks for responding with the Unit Agreement Documents. I have signed those documents so I am familiar with those paragraphs. Deciding what minerals are in a PA in accordance with Paragraph 11 will be the next important step for us.
As I explained in the initial posting, the first well will be drilled sometime in the next 6 months and according to the map, the well path is within 1100 ft of the western border of minerals we own. If this well followed the rules of the State of Wyoming, I think we would be participate. But of course the Federal Exploratory Unit does not follow Wyoming rules. And the criteria for deciding what acreage is included in the PA sounds very subjective to me. Its almost like the opertaor tell the BLM, these are the pools we are drawing from -- therefore include those. Do they have imaging data that is that good so they will know where the oil is coming from?? The horizontal path of this well is close to 9000 ft. in length.
I spoke with a man at the BLM and he said they are using a general rule. Drawn on a surface map, they draw a circle with a 745 ft radius on each end of the well. Connect the circles on each side. The area in that structure is in the PA. Again, this is what I thought I head him say. So I hope no one takes this a gospel. The method sounds simple -- I have no idea how effective it is for mineral owners. If you have any knowledge in this area, I would be interested in your comments. Again, thanks for your help. John
From what you wrote above, it sounds to me like the objective of the well is fairly shallow, perhaps even a coal bed methane play. (I am making an assumption here that when the well begins its 9000’ step out, it is maintaining a generally level depth below the surface.) In general, the deeper a well goes the higher the pressures. Higher pressures translate to a larger drainage area per well and therefore a rational for a bigger PA, spacing unit etc. The relatively small extent of the PA in one direction and a long extent in another indicates a low pressure regime and might be an explanation as to why a cigar shaped PA has been/will be approved. There could also be seismic evidence of faulting or other geologic barrier, which separates one tract from another.
As for determining the size and acreage included in the PA, the BLM will definitely consider seismic data, geologic data or even geochemical data if the operator presents it. This is good data to have, and is usually reliable, but at the same time it is not conclusive proof of what acreage is productive and what is not. Actual well data and pressures are necessary to establish a true drainage pattern. If actual well performance shows a larger area should be included in the PA, the BLM is bound to do so.
The BLM will not necessarily rubber stamp whatever PA is proposed by the operator, but the BLM will most likely not have independent seismic data to counter what the operator has proposed. They will simply have to decide if what the operator proposes is reasonable, given the data they have to review. If multiple other wells have been drilled into a similar reservoirs (by that I mean similar depths and objective formation) and shown over time to support the type of drainage pattern proposed by the operator, it will be difficult for the BLM to do anything different than what has previously been accurate without solid data to support a different decision.
While your acreage may not be included in the initial PA, the fact that the operator is drilling such a long step out means that they believe the productive formation extends over a pretty large geographical area. I wouldn’t be surprised given success in the first well that your acreage could be included in one or more subsequent Participating Areas.
The initial well will go down to a depth of 10,482 ft. It is a deep well down into the Niobrara Shale formation. The drilling unit has a "Deep Unit" title so I assume by BLM standards, this exploration is considered deep. I'm sorry I didn't make that clear earlier. The horizontal path is then about 9000ft running North to South. The well will cross a section boundary which is one of the things Chesapeake gets out of forming these Federal Units. Chesapeake is also getting an extension of a Federal Mineral Lease they purchased which was about to expire.
From your comments, it sounds like only Chesapeake really has the detailed information to decide what is in the PA. Our mineral interests are small -- only 440 surface acres out of in a 5760 acre unit. And my brother and I only own 1/2 of the minerals. But the minerals are located right in the middle of this drilling unit. Like you, I have a general sense we might be luck sometime. It is probably not this well. But when a well is drilled this close to minerals we own, I'm interested in all the information I can gather about the process of determining a PA.
I have 2 leases with Chesapeake in Converse County and from those they have presented me with, just about six months before they are to expire, with "pooling" documents for three separate projects. One of those is named "Linden". Would that be connected in some way with your property? I am totally baffled by this pooling business and the fact that it ties up the property - again - for five years without compensation and Chesapeake, even though they have an option to re-lease on these 2 leases, one in November 2011 and the other in Feb. 2012, will not say if they are going to exercise that option (I figure because of the pooling leases), thereby escaping a payout to my family of just over a half million dollars very soon. The other two pooling projects are York Ranch and Lodgepole Pine; I don't know if you've heard of them and since I'm in Arizona now, I have no idea what's going on with them either. But if your well is my Linden project and it won't be going in for six months, I'm just wondering about the other two. Any light you could shed for me would be so appreciated. Thanks.
Yes, I think it is the same area. Our minerals are in the Linden Deep Unit in T34 R 69. The York Ranch Unit is South of us in T33 R69. I am not familiar with Lodgepole Pine. I am also not familiar with pooling agreements but I would be glad to exchange information and tell you want I know. Give me a call at home and we can discuss. I don't want to list my phone number here. To get my number, call information in Alamo, CA. We are listed with AT&T Information. Thanks John