Mineral owners wary of mega-unit plan
If you go:
What: North Dakota Industrial Commission Oil and Gas Division hearing on QEP Energy Co. proposal
When: 9 a.m. Wednesday
Where: University of North Dakota Memorial Union
Info: The hearing will be broadcast live at www.dmr.nd.gov/oilgas/docketindex.asp
WATFORD CITY – An oil company is proposing a drilling unit 20 times larger than what is typical with promises that it will benefit mineral owners by pumping more oil while reducing the impact on the land.
But even though mineral owners could make more money under the proposal, many say they’re hesitant to sign up before they fully understand the complex agreement and what rights they may be giving up.
“If you’re a little guy involved in this, you don’t know if it’s good, if it’s bad,” said Jay Budge, a Twin Cities real estate broker whose family owns some minerals in the proposed unit.
QEP Energy Co. will present its plan to develop the Grail-Bakken Unit, about 25,000 acres in McKenzie County, to the North Dakota Industrial Commission Oil and Gas Division this week.
Bakken wells are typically developed in 1,280-acre spacing units and operators have to stay away from setbacks at the boundaries of the units, said Mark Bohrer, a manager in the Department of Mineral Resources Oil and Gas Division.
Developing the area as a large unit rather than through smaller, individual areas allows the company to drill wells at optimal locations, Bohrer said.
Within the proposed unit, 69 wells already have been drilled, according to QEP’s petition.
QEP estimates it can drill up to 110 more wells and recover an additional 5 million barrels of oil equivalent by developing the area as a large unit, according to the company’s petition.
Treating it as one unit also will allow the company to group wells together and centralize production facilities, reducing the overall impact on the surface, QEP says in its petition. It also will make it easier to connect to pipelines, reducing the amount of truck traffic in the area, the company says.
QEP would be the sole operator in the unit. All mineral owners would share in every well in the unit according to a participation factor, Bohrer said.
The company needs 60 percent of mineral owners to agree to participate in the unit under state statute.
Mineral owners received notification of the proposal in the mail from QEP, and the company held informational meetings in Watford City. The company also set up a hotline and email address to take questions on it.
QEP has received more than 450 agreements to join the unit, said Lynn Welker, stakeholder relations adviser. It’s unclear what percentage that represents.
“QEP has heard from many mineral owners and almost all of the owners are receptive to the formation of the unit,” Welker said.
Gene Veeder, a rancher and economic development director in McKenzie County, said he’s received calls from dozens of family members and neighbors asking his input on the unit. Veeder, who is both a landowner and mineral owner in the unit, said he’s still exploring his options and consulting his attorney.
If the unit is managed properly, Veeder said it appears to be a positive thing because it would recover more oil and better facilitate the development of pipelines. However, Veeder said he wants to make sure he won’t lose rights as a surface owner to have input about where wells, roads and other facilities are located.
“Most are still trying to figure out what the long-term effects are,” Veeder said.
Budge said he didn’t like that QEP sent hundreds of pages of documentation to mineral owners and asked for an answer within a short timeframe. Budge said his sister agreed to participate in the unit, but he decided not to sign it because he feels uncomfortable doing so.
“It’s just sort of like writing a blank check. You’re giving approval and I don’t know exactly for what,” Budge said.
McKenzie County rancher Donny Nelson and his attorney published an ad in the local newspaper urging people to fight the proposal, alleging that the process will allow companies to take part of people's royalties, delay development of the resources and take away other rights.
“This just makes it easy for them and they just get a blanket easement,” said Nelson, who does not own minerals in the unit but worries about the precedent it could set. “In the process, it takes away a bunch of other rights.”
The newspaper ad paid for by Milwaukee attorney Fintan Dooley, who is working with Nelson, urges people to file notices of intent to sue.
Nelson and Dooley also question why the hearing is planned for Grand Forks and not McKenzie County, where the unit is located.
Typically the hearings are held in Bismarck, but this one was moved to accommodate a request from the UND law school, Bohrer said.
Students from the petroleum engineering department also plan to attend, said a UND spokesman.
The division will take the proposal under advisement and a recommendation will be forwarded to the full North Dakota Industrial Commission led by Gov. Jack Dalrymple.
In December 2011, the Industrial Commission approved a 31,000-acre oil production unit in Dunn County called the Corral Creek-Bakken Unit, the only other mega-unit that has been approved for the Bakken. Units have been more common in other geologic formations, Bohrer said.
In the Dunn County case, Department of Mineral Resources Director Lynn Helms recommended approval of the unit because he said developing it that way would have less impact on the Little Missouri State Park and it would keep well pads out of the river’s flood plain.
The proposal drew opposition from mineral owners who said it would delay development of their minerals and take away rights from landowners. Nearly a year after Corral Creek was approved, petitioners in the county sought to have a grand jury investigate whether campaign contributions Dalrymple received from companies involved in the proposal violated bribery statutes. The petitions were dismissed.