Background: there is a reader who knows more about the Bakken than any reader who corresponds with me about the Bakken. He is part of the Bakken revolution. He has skin in the game. A lot of skin in the game. I value no one's opinion about the Bakken more than I value this reader's opinions about the Bakken.
I will use the "call sign" "Dallas" to refer to the reader, and will place his notes -- unedited except for formatting and to maintain anonymity -- here.
The following needs to be formatted.
November 6, 2021, 10:50 a.m. CT: I asked "Dallas" about "Harrisburg"s comments regarding large spacing units in the Bakken. Here is the reply from Dallas and I agree completely. Several points are raised which I will expand upon later in other posts.
I think right now recoveries are already at or close to 20% in the Williston – very high when compared to other regions.
The note on large DSUs – I’m not sure any operators are sandbagging. I just think it’s more efficient from a regulatory view to go ahead and get rid of as many lease line setbacks as possible in one swoop.
From EOGs perspective in Parshall – the configuration of initial parent wells was always going to be an infill obstacle and large continuous blocks are always going to be helpful to the operator. Big DSUs are initially dilutive to the mineral owner but if they get a ton of wells they otherwise wouldn’t have gotten they’ll get to a better place eventually (in terms of royalty income).
I don’t think the comments are out of left field, but I think we are a ways away from successful secondary and tertiary recovery (waterflood /gas injection) in the Williston.
Back to Parshall – it sounds counter intuitive – but the rock is more porous in that field vs say Blue Buttes oil field. “Better” rock requires less wells to effectively drain the reservoir. You may never see what we would consider full infill development in Parshall because recoveries from initial parent wells were so good. They effectively drained the reservoir with very primitive fracs some time ago meaning lack of remaining oil may render future development wells sub economic (depending on oil price and drilling costs) .
November 5, 2021, 2:00 p.m. CT: following the reader's original note (see below, 10:00 a.m. CT, today) I asked:
If you get a chance, I'm curious: if you were fully invested in CLR (financially or emotionally or however you want to define "fully invested") would you have been happy with this breaking development, that CLR invested in the Permian, in this way, to this degree.
If someone asked me that: I (Bruce Oksol) would answer in the affirmative.
The reader's response:
Really tough for me to answer that.
I think a more logical fit would have been XTO Bakken acreage but maybe they weren’t willing sellers.
This area of the Delaware contains a lot of geologic intricacies and hazards.
When you think of a very “quiet depositional environment “ you think Bakken, Midland, Appalachia & Haynesville. Those reservoirs are very similar as you move north and south from a central location.
This acreage -- the acreage CLR acquired from PXD -- is not that. LOL.
However - [CLR has] experience with complex reservoirs - SCOOP/STACK - and maybe they think they can apply those [lessons learned] to this acreage.
Jury is out for me. Maybe Hamm had a little FOMO watching all these deals get done over the past 12 months and had enough of being on the sidelines.
FOMO: fear of missing out.
November 5, 2021, 10:00 a.m. CT, the following has not been formatted:
In addition to the operated acreage - the deal includes 55,000 net mineral acres that were acquired by Jagged peak (then sold to Parsley , then sold to Pioneer), then acquired by CLR.
These mineral acres are then normalized to a 1/8th royalty. When you take a mineral acre down to a 1/8th royalty its classified as a “royalty acre”.
For example – when you own 1 mineral acre leased at a 1/4th royalty – you have 2 royalty acres. When you own a mineral acre leased at 3/16ths – you have 1.5 royalty acres. For a mineral buyer like myself – one mineral acre in the same DSU has a different value based on what the lease royalty is. It’s a way to bring everything to the lowest common denominator. CLR will now own some of the minerals in the drilling units they purchased – in addition to the working interest. They bought 90K acres of working interest and also the equivalent of 55k mineral acres leased at 1/8th.
It's difficult to value the “acreage” in a deal like this when there is a good amount of production. It comes down to how many wells you think they can drill in a “DSU” as we would call it in the Bakken – and how many wells you think there are left to drill. I use quotes because not every unit is going to be a uniform “1280” in the acreage they acquired as it is in ND & MT. Some wells will have to be drilled at shorter lengths as a result of irregular sections and shorter laterals drilled early on in order to hold acreage.
Side note – parent child is more of an issue in the Permian Delaware (and scoop /stack) as a result of all “parent wells “ being completed with “new era” (shale 3.0 fracs). 90%+ of the parent wells in the Williston were completed with very primitive fracs – therefore stimulating very little (relatively) reservoir. Im not saying parent child would be an issue in the Williston if parent wells were more modern but it would be a larger consideration if more of the reservoir was drained by a standalone parent well than they were.
Back to my point on the acreage – If you have a 1280 DSU where there 4 existing producing wells (ignoring parent child) and you assume there are 12 total wells to be drilled in a unit. If 4 are already drilled, then you have 8 remaining well locations – you would assume your DSU is 4/12ths drilled. You would then assume you are 8/12ths “undeveloped”. Therefore, you would have 853.33 “undeveloped” acres remaining. Lets assume the production from those 4 wells is worth (I’m making this value up) $5MM dollars discounted at a 10% discount rate (which is industry standard) and someone pays you 20MM for the entire 1280 acres – here is how you would find out how much someone is paying for the undeveloped acreage -
1280 acres
Deal size – 20MM
Production value – 5MM
15MM remaining (all things being equal) and 853.33 remain undeveloped acres – 15,000,000/853.33 – 17,578.20/acre
In a hurry – hope this helps.
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