Significant application to COGCC for 640 acre spacing

Colorado Mineral Rights Weld County, CO
#1

We have received a packet of information from a law firm in Denver representing Marathon Oil, that we and 55 other "interested parties" hold a mineral interest, % unknown as yet, in 15 Sections of land in 9N, 65W / 9N, 64W / 8N, 65W / 8N, 64W. They want to drill horizontal wells in each of the seperate sections so I gather that means automatic pooling. Does Colorado have forced Pooling??

I assume that the Oil Company and Law Firm have done their homework regarding holders of mineral rights since they have already submitted the application to the COGCC.

This may be in the works for awhile but does anyone have any thoughts regarding bonues and % of royalty's that might be offered?

#2

I would want to see what they are offering just to have a starting point. Would think your group would want to designate one person to represent the group.

#3

My current understanding from reading the COGCC regulations is that in Niobrara wells, which I am assuming you are referring to, are under a 640 acre section spacing unit, meaning that they will unitize mineral rights by section. I have heard of cases of 1280 section spacing, but am not aware of any of that in the DJ basin, I think that is more prevalent in the Bakken Formation in ND. I would certainly organize groups of mineral owners by section at least, if you can get other sections, all the more power you will gain. If you can organize multiple thousands of acres, you have more power during negotiation. Once organized you should shop around to other companies and maximize your the value for YOUR oil.

I do wonder however if this Niobrara play will morph to 1280 section spacing (as alluded to by a landman from Cheasapeake Energy we met with) because in more populated areas there will not be as many good locations for drill pads in a 640 spacing unit. The COGCC may be forced to go to 1280 in order to grant reasonable access to minerals.

Does anyone know of the disposition of the COGCC to moving to a 1280 acre spacing unit for NIobrara Horizontal wells? I personally think it is inevitable.

If they move to 1280 spacing, the force pool card will be wielded even more heavy handed than it is now by the landmen. I personally do not fear force pooling. Once you understand that it is a last resort of an operator, and that the operator MUST offer you a market competitive lease before a force pool, it becomes much less scary. Still, being forced pooled is a thing to be avoided, IMHO.

#4

Sorry for the 2nd post, but regarding the % royalty and bonus offered, we here in Douglas County… where no wells have been drilled, have heard of 22% royalties and $2000/acre bonus being offered. Now that’s for semi-rural 3 acre plots close to town. Since you are in Weld county and close to the Wattenberg field, I would think you should be looking for at least $1000 an acre… but that’s just the rumor. Please due your own due diligence and shop your acreage around. Nothing like healthy competition to get your fair market price… its just good business.

#5

Many thanks John and Gary for your replies. I seriously doubt that the various mineral owners will present a collective voice for a variety of reasons. Some of the interests are oil companies, some are relatives, some, well I don't even know....nor should I.

A hearing has been requested for next month and assuming that there will be protests, we may see some movement toward 1280 spacing but who knows. I am not sure that would effect the various interests holders but then if I was that smart I would be a contributor and not a listener. This is all new to me so I appreciate the comments. Like so many folks, we hope to garner some benifit granted to us by those that have gone before us.

John Lambe said:

Sorry for the 2nd post, but regarding the % royalty and bonus offered, we here in Douglas County... where no wells have been drilled, have heard of 22% royalties and $2000/acre bonus being offered. Now that's for semi-rural 3 acre plots close to town. Since you are in Weld county and close to the Wattenberg field, I would think you should be looking for at least $1000 an acre... but that's just the rumor. Please due your own due diligence and shop your acreage around. Nothing like healthy competition to get your fair market price... its just good business.
#6

Holly cow tfarming, that is a lot if information to get my head around. I need some more coffee and time to digest all this…thanks .

tfarming said:

A second thought on the subject of 1280 spacing....

Since all odd numbered section's oil (in this area) was originally granted to Union Pacific Railroad and has since been transfered to Anadarko (oil co.) , it means that Anadarko would be forced to share it's oil with any adjacent section's oil rights holders *IF* someone pushes for 1280 spacing. And I seriously doubt if Anadarko would go along with it. And they are BIG as they currently hold 50% of the oil rights in the entire area.

#7

Tfarming, we are not leased. I think this has to run its course for a while and if & when someone comes knocking with a proposal, for sure we will be seeking sound advise from a professional. Looking at various oil company news releases today, it appears that the DJ play and beyond is still going strong in NE Weld County. Thanks again, I appreciate all the information I can get.

Bob

#8

tfarming I sent you a PM request. Got a couple of questions. BTW, thanks for looking all this up, I appreciate it very much.

Bob

tfarming said:

Hi Robert,

From a local point of view, this play is just starting! It will go on for years in this area. The oil companies are going to make tons of money and hopefully so will we.

I see that you have only a few mineral acres and you reside in Calif. When the time comes and you get an offer for your minerals, here is what I would do if I were in your shoes:

Go here

http://www.co.weld.co.us/Departments/Purchasing/CurrentRequests/Oil...

and download one of Weld County (government) oil lease forms and read it and compare it to what ever is presented to you. Notice the differences and decide if you need to act on them. Actually it would be a good idea to save one to your computer in case Weld is not leasing when the day comes and you have a lease offer.

Lease for Not more than 3 years for the primary term and no extensions.

If they offer a bonus for the option to extend... turn it down. The lease will be worth much more when it expires (if un-drilled).

Not less than 20% royalty. Use Weld County (government) as justification.

Royalty paid so that you are not responsible for any production costs (but possibly some 3d party transportation costs).

Bonus somewhere around$1000 to $1500 per net mineral acre.

Seperate leases on seperate lands.

$20 per acre for shut in wells (not the cheesy $1 or $2 per acre that has never changed for the last 30-40 years)

I suspect that with your small net acreage, you will be more likely to be force pooled than if you had a larger percentage of a drill spacing (640 acres), so factor that into the strength of your negotiations.

"IF" I understand the royalty process correctly (Anyone else... please jump in here) .... you can do some really rough numbers to see what kind of income will be "POSSIBLE" and then see why professional help is advisable.

3 (net acres) divided by 640 (acres of drill spacing) times royalty % (use 20%) times barrels per day ( guestimate at 300 barrels) times price of oil at market ( guestimate at $70 ) = $19.69 per day = $590 per month = a little under $7200 per year.

Obviously as you change any of the numbers it will rumble through to different totals. For example, using 15% drops the guestimated $ per day to $14.76 and you are down to roughly $5400 (which is why that royalty % is SO important). Using 20% but drop the barrels per day to 200 and you are at $13.13 per day and roughly $4800 per year. ETC. Etc. etc.

Keep up the research and have fun!

#9