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QUESTION: Dear Mick,

I'm trying to help my mother calculate her decimal interest in the Bakken in N.E Montana.  I'm a little confused and hope you can help me understand.

She's part of 2 spacing units in N.E Montana and pumping has just begun.  She received a division order from the oil company indicating her "decimal interest".  

Her lease agreement - 639.50 gross acres, 42.64 net acres, 19% royalty.  One well so far on 2 spacing units.

I'm not very experienced but I calculate a decimal of .0126686.  Her division order states .00633532 (roughly half).  

When asked, they said because she's involved in 2 spacing units, it drops her 42.64 net acre ownership to 21.32 (half) until they drill a potential 2nd well on the other spacing unit, at which time her net acres would revert back to 42.64.  Does that make sense?  

Thanks in advance for any advice!
John

ANSWER: Since the unit is apparently 1280 acres, her 42.64 acres is half the percentage of the entire unit she'd own if it were only 640 acres.

Her interest won't "revert back" to 42.64 acres in a 640-acre unit unless they apply to have the 1280 unit reduced down to two 640's later; which they've implied they may do after a second well is drilled, though I don't see why they would do that if they already have a unit established. Most Bakken wells are spaced at 1280 acres so I think her decimal will probably remain the same no matter how many wells they drill, though she will of course share in all of them so her INCOME may double at some point if more wells are drilled.

Hope this helps you out.
Frederick M. "Mick" Scott CMM, RPL
www.mineralhub.com
The Mineral Hub

---------- FOLLOW-UP ----------

QUESTION: Thanks for the reply!  I guess I'm still a little confused on the math.  The division order and lease state the following:

Property Number:  103443
Richland County, MT
Sec 18-TO25N-RO52E
Spacing Unit 638.80
639.50 Gross Acres 42.64 Net Acres

According to the lease agreement, she receives a 19% royalty.  

How would you calculate the decimal interest?  (I can't figure out how they came up with .00633532).

Thanks!
John

Answer
I would ask them how they came up with that decimal. You've got me! If she owns 42.64 acres in a 638.80-acre spacing unit with a 19% royalty then her decimal should be 42.64/638.80 X .19 = .012682529.

Keep in mind that if you were getting the acreage figure off the lease document it may not be what she owns, but simply the net acres in the unit they leased (from ALL the owners in that tract.) That said, if SHE owns 42.64 acres in a 638.80-acre spacing unit at 19% royalty then I stick by my figures so you'll have to call them to find out why they're coming up with something different.

Hope this helps you out.
Frederick M. "Mick" Scott CMM RPL
www.mineralhub.com
The Mineral Hub  

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Frederick M. Scott

Expertise

Oil and gas leasing, lease negotiations, how to best deal with the oil and gas companies or their representatives, buying/selling mineral rights, forced-pooling, correlative rights, deeds and conveyances, and "post-production" costs. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.

Experience

I am a Certified Professional Mineral Manager (CMM) certified by the National Association of Royalty Owners (NARO) in Tulsa, OK. I am also a Registered Professional Landman (RPL) with the American Association of Professional Landmen (AAPL). I have managed my family's oil and gas properties in Oklahoma for over 10 years and have dealt with many landmen, title analysts, attorneys and other oil and gas professionals in the process. I have written several articles which have appeared in various oil and gas industry magazines and newsletters. I have negotiated and drafted leases, prepared deeds, affidavits, and other legal instruments relating to my own minerals, as well as performed title, legal research, and curative work for same. I have acquired a good deal of knowledge on the subjects of oil and gas law, mineral appraisal, and landwork over the past ten years, and also worked as a professional landman and lease buyer for a time. I've seen the business from "both sides" and therefore feel confident I can help out most of the folks who ask questions in this forum.

Organizations
National Association of Royalty Owners (NARO); American Association of Professional Landmen (AAPL)

Publications
National Association of Royalty Owners "Action Report" (ROAR); NADOA Magazine, The Mineral Hub, Landman Magazine, and several royalty owner association group's newsletters.

Education/Credentials
Certified Mineral Manager (CMM), Registered Professional Landman (RPL)

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