Section 14, Block 5

i received a call from a landman in Oklahoma today wanting to buy the mineral rights to my two acres in Section 14, block 5 in Reeves Co. He offered &45,000-$50,000. I told him I was already leased and he appeared to know that. When I told him they had been drilling for about six weeks, he seemed surprised. Said he would talk to his engineer and maybe they could do better...Any opinions on this offer? This has been in our family for 100 years. I’m thinking he must know something I don’t.

COG has permitted 12 wells in Section 14, Block 5, H&GN Ry Co Survey. 5 wells in Iceman Unit and 7 wells in Hollywood Unit. Your participation in the units depends on the location of your gross vs net acres within the section. Iceman Unit 1401H began producing in September 2017 and produced 20,572 bbl and 47,703 mcf. In October it produced 48,798 bbl and 107,807 mcf. (RRC reports under pending categtory - District 8 and permit 824288. Iceman 1451H was spud on Sept 11 and Iceman 1402H was spud on September 28. Hollywood Unit 1406H was spud on September 4. Hollywood 1455H was spud on September 25 and Hollywood 1405 H was spud on October 11. Do not think for one minute that the landman was "surprised." Purchase of any minerals under these wells will reflect an immediate return on an investment.

I kind of thought that if you were in my position, you would hold on to the mineral rights. A neighbor to our land says that they are drilling on our property and every few days new pipe is delivered. I’m a real novice in this matter. How can I know if this is a horizontal or vertical well? Is one better than the other?

These are all 2 mile horizontal wells. Most operators add H to end of the name to indicate it is a horizontal well. Your royalty decimal will be small in a larger unit, but the production volumes will increase. Large oil companies such as COG are mainly drilling horizontal wells, particularly in Wolfcamp formation.

Thanks so much for the education! Every time I post I feel like I get a little more knowledgeable!

My acres are in the Iceman Unit i believe. My legal is the SW/4 of Section 14, Block 5, H&GN RAILROAD COMPANY SURVEY, ABSTRACT 5177. Can you tell if a well would affect this parcel? If so, how would I find the well information? Thanks for any information you might be able to give me. I received another call today regarding selling my mineral rights. She said that if the did hit oil, it would take 30 years to receive $50,000 since I only have 2 acres.

Assuming that your royalty rate is 1/4 (25%), then your royalty decimal = 2 acres / 800 unit acres X 1/4 = 0.000625. Oil sold in September & October = 69,370 bbl. At $50, then the sales = $3,468,500. Your royalty = $3.468,500 X 0.000625 = $2,167.78. You will also be paid gas royalties. Production drops rapidly during the first year, but even if you average $1,000 per month, then you will receive $12,000 in first year from a single well. COG is drilling multiple wells on your unit. Keep in mind that if your royalty rate is 20% or 3/16, then the monthly revenues will be lower.

That said, the Iceman unit includes the E/2 of Section 14 and that would be the SE/4. So you may be in the Hollywood unit. That unit is 735 acres and so at 25% royalty rate, your decimal will be 2 acres / 735 acres X 1/4 = 0.000680272

Sorry to be so dense, but are you saying that if multiple wells are drilled on the 735 acres that is the Hollywood Unit, we would see additional monies from those? So it doesn’t have to be on the acres that my grandfather owned?

When a unit is formed, all of the mineral owners are paid royalties on all wells drilled on the unit acreage, whether or not the wellbore is actually on the exact minerals. Units are often formed to put together sufficient acreage to meet RRC requirements for a permit. Some are formed for other reasons. But all of the units set out a formula for the production and revenues to be shared among the mineral owners. For the horizontal units, most often the allocation method is based on the percentage of each owner's net minerals to the total unit acreage. So your share is 2 net acres/735 unit acres. Then this decimal (or percentage) is multiplied by your royalty rate to get to your royalty decimal. So if your minerals are included in the Hollywood Unit, then you will participate in all of the wells drilled in the unit. Due to the thickness of the Wolfcamp formation, there is potential for quite a few wells. Let's hope that they are all great producers.

Thanks so much. Your information makes things much clearer for me!