CLR's Anna Wells Production Update -- These Wells Are Struggling -- March 31, 2024

Production runs:

How To Read A Production Statement -- 39366

The well:

• 39366, drl/A, Grayson Mill, Williston 30-31F XE, Catwalk, 1/24; cum 64K 1/24;

A brand new well.

• stimulated 11/6/2023; test date 1/6/24, middle Bakken, 53 stages; 12,639,270 lbs proppant (a huge frack, both in terms of total proppant, and number of stages); great results;

Since this is a brand new well we can help explain to the reader what an oil company's production statement looks like. I've never done this before. No one has taught me anything about reading production statements and I haven't googled anything on production statements, so some / much of this could be wrong. 

Overview:

The calculations:

Williston 30-31F XE	Size of Drilling Unit	Total bbls January, 2024.	Price	Owner’s Volume (bbls)	Bbls / acre (total bbls / size of unit)	Decimal interest	Volume (column g) x column (c)	My calculations	Company’s	Royalty interest est	Acres est based on RI est
	2560	61,026.68	$70.76	1.83	23.8385	0.00002995	1.83	$129.49	$129.34	0.375	0.2
	2560	61,026.68	$70.77	2.67	23.8385	0.00004368	2.67	$188.96	$188.65	0.375	0.3
	2560	61,026.68	$70.75	0.28	23.8385	0.00000460	0.28	$19.81	$19.86	0.375	0.025
	2560	61,026.68	$70.77	7.16	23.8385	0.00011727	7.16	$506.71	$506.45	0.375	0.8
				11.94				$844.97	$844.30
Comments:	Size of drilling unit: a section line well — four sections.	Total crude oil sold in January, 2024, from this well in bbls.	Price oil was sold at (may vary slightly.	From the company on the production sheet.	My calculation: (column C / column B)	Decimal interest (column G) was determined by the company.	My calculation confirms the company’s calculation.	Royalty at the wellhead; my calculation (column H times column D).	Royalty at the wellhead; the company’s number.	My estimate. 0.375 is 3/16ths.	My estimate based on the estimate in column K.

The maps:

The scout ticket and production data:

 ********************************
The Reader's Production Statement
For The Above Well

Wow, wow, wow -- a reader whom we will call Tucker just noted a new well on his / her monthly production statement. Tucker has never paid much attention with his / her production statements but with a brand new well, Tucker thought it was a great time to see if I could help him / her with reading / making out the production statement. So, this weekend, I will post some YouTube videos explaining oil production statements. 

This should be fun.

Okay, I've started taping the videos. 

These videos are very amateurish.

I may have a lot of this wrong, and all of this information can be found on the web posted by much more knowledgeable folks and much more professionally. I often use terms incorrectly, and I often round numbers, so take all of this with a grain of salt. I'm simply trying to explain to a reader how to read his/her production statement. 

I'm hoping to provide enough information -- right, wrong, whatever -- to get the reader started. 

Feel free to fact-check and re-run the numbers. 

Again, this is for one reader; it is not for the general audience. If in any way you think this might affect your own minerals, go to other sources for better and more accurate information. 

I think Clip 1 is the worse; I may re-do it.

Clip 2 is of the well itself -- where it's located, etc.

Clip 3 is probably the one the reader is most interested in -- how to calculate the decimal unit and how the decimal unit is useful.

So, here goes.

Clip 1:
Clip 2: There is an error in the spreadsheet that I produced for this video but that error has been corrected in the post and in clip 3 below. It does not matter with regard to what I was posting in Clip 2.


Clip 3: Note only major error in this clip. I stated that the 2560 acre drilling unit was two sections, one mile by two miles. In fact, a 2560-acre drilling unit is four sections, two miles by two miles or one mile by four miles -- both methods giving one four square miles of surface area and four square miles in the drilling unit.

Decimal Unit

The decimal unit for each well is based on three numbers:

• the size of the drilling unit;
• the number of acres owned by the mom-and-pop mineral owner; and,
•  the royalty override.

Size of the drilling unit:

• the standard size in the Bakken is now 1280 acres
• in the early days, the standard unit was 640 acres
• in addition, there are now huge drilling units, commonly 1920 acres, 2560 acres, 3840 acres, and, occasionally, 5120 acres
• for this discussion this does not matter, but a section is 640 acres, and the standard Bakken drilling unit is now two sections, or 640 acres x 2 = 1280 acres

Number of acres owned by a mom-and-pop mineral owner:

• a farmer who kept all his acres might still have 160 acres (a quarter section), even as many as 320 acres,
• a small mom-and-pop non-farmer mineral owner who picked up an acre here and there might have 10 acres in a drilling unit or as little as one acre

Mineral override:

• the oil company is going to spend a lot of money drilling a well and marketing the oil;
• therefore, the oil company wants part of the oil that the mom-and-pop mineral owner own;
• the oil company and the mineral owner agree to a mineral / royalty override in the lease;
• in the old days, it was common for the oil company to get 7/8ths and the mineral owner would get 1/8th;
• then, it quickly went to 3/8th in the Bakken and anything in between
• folks often used to talk about 1/8th mineral override which works out to 1/8 = 12.5%
• now, it's common to talk about 3/8ths mineral override, the percent that a small mineral owner retains
  
• when calculating the decimal unit, one can use either the fraction (e.g., 1/8) or the percent (e.g., 12.5%)

So, first example:

• if a mom-and-pop mineral owner owned 10 acres in a 1280 acre drilling unit and they signed a lease for a royalty override of 1/8 the decimal unit is calculated this way
• decimal unit = (10 / 1280) * 12.5%  
• decimal unit = (10 / 1280) * 0.125
•  decimal unit = 0.0078125 * 0.125    OR       0.0078125 * (1 / 8)
• decimal unit = 0.0009765626 

That's all one needs to know about calculating decimal units.

Rule: this is the most important rule to remember --

every well stands alone. 

• just because two wells are sitting right next to each other on the same pad only thirty feet apart, that doesn't mean they will have the same decimal unit.
• in addition, wells on the same pad can "go in completely different directions" with horizontal drilling; some wells can go to the north, some to the south, some to the west, some to the east, etc, and they could all have different drilling unit sizes 
• over time, as drilling units get larger in the Bakken, decimal units will get smaller, all other things remaining the same;
  

Two wells on the same pad can be drilled in different drilling unit sizes.

• in the early days, an oil company drilled the first well on a 640-acre drilling unit; that was the standard size in the early days
• then, to save money, etc., they would drill a second well right next to the first well (to use the same "pad") but it would be on a 1280-acre unit
• the first well:
• (10 / 640) * 0.125 = 0.001953125
• so if nothing else changed, the second well:
• (10 / 1280) * 0.125 = 0.0009765625
• and, a section line well, the newest drilling units to capture oil along section lines:
• (10 / 2560) * 0.125. = 0.00048828125
  

Why wells sitting right next to each other can have different decimal units:

• those three wells could be sitting right next to each other on the same pad and all three would have a different decimal number.
• the number of acres owned did not change in that example.
• however, if the second well drilled into a second section where mom-and-pop owned 10 acres, then the equation would change:
• (20 / 1280) *0.125 = 0.001953125
  
•  the first well would determine the royalty override, 1/8th (0.125) in this example.
• but if mom-and-pop signed two different leases for two different sections in the 1280-acre drilling unit, then the second and third wells would have royalty overrides different than the first well.
• so, it can get complicated very, very quickly.

Working backwards: 

•  if one knows the royalty override, let's say 1/8, and the decimal unit, one can determine the number of acres owned in a specific drilling unit. One also needs to know the size of the drilling unit, which the NDCI scout ticket provides for every well in the Bakken.the formula:
•  decimal unit = (acres owned / size of drilling unit in acres ) * royalty override
•  0.0009765625 = (acres owned / 1280 ) * 0.125
•  (0.0009765625 * 1280) / 0.125 = acres owned
•  = 10 acres owned by mom-and-pop mineral owner 

Things change but once changed will not change again:

• the number of acres owned will not change
• the size of the drilling units for two wells next to each other may be different, but over time, the size of the drilling unit does not change for that well, even if a third well goes it which may have a completely different size drilling unit
• the royalty override was determined at the time the lease was signed and affects the location of the acres that are owned; it does not reflect the wells themselves (if that makes sense) -- this gets very complicated but there is an example up above
• the early leases often had a 1/8th override; the newer leases may have as much as 3/8th override; the oil companies were able to be 3x more generous because the Bakken was so incredibly "rich"

A reminder:

• with Bakken horizontal wells, a well sited two miles north of the acres owned by the mom-and-pop mineral owner will still pay royalties to the mineral owner if the ten acres are in the same drilling unit as the well about which we are talking
• some farmers can't even see the well from their house from which they are getting minerals
• wells targeting other formations, such as the Red River formation or the Madison formation have very different drilling unit sizes but the calculations are the same
  

Example, using real dollars:

• a newly drilled well with 1280-acre spacing in the Bakken might produce 30,000 bbls the first month
• at $70 / bbl, that's worth $2.1 million
• that's just the oil; there is also natural gas and other non-crude-oil liquid products
• the company retains 5/8th of that and allocates 3/8th of the total oil to other mineral owners, often small mom-and-pop mineral owners
• the 30,000 bbls of oil came from the entire drilling unit:
• so, if a small mom-and-pop mineral owner owned 10 acres in that 1280-acre unit, they would get the oil produced in only those ten acres, or 10 / 1280 = 0.0078125
• so, how much oil is that? 30,000 x 0.0078125 = 234.375 bbls of oil
• but it cost the oil company a lot of money to drill that well, so they retained 5/8ths and allocated 3/8ths fo the mineral owner
• 3/8th x 234.375 bbls of oil = 87.89 bbls
• at $70 / bbl = $6,152 for one month, but some miscellaneous fees would be withheld from that check, in addition to federal taxes and state taxes that might or might not be withheld, but will have to be paid at some time.

Typographical and content errors likely in the above note.

Whiting Tax 1099 Information -- Chord Energy -- Tax Year 2023