ND Oil & Gas Law

Accessibility


| Share

Exploration and Production

This page overviews the general process of exploring for and developing oil and gas resources. Understanding the general process should clarify the reason certain topics arise in leasing mineral rights or when using surface areas for oil and gas production.

.

Many residents in western North Dakota are familiar with the process of petroleum (oil and gas) exploration and production. However, the nation's use of energy and advancing exploration and production technologies (such as horizontal drilling and "fracking") have produced an upsurge in petroluem exploration and production into new areas of North Dakota where residents are not familiar with the process. Being aware of the steps involved in exploring for, finding, and producing oil or gas will aid in understanding the need for some of the provisions mineral owners may wish to include in a mineral lease for their benefit or protection.

.

The process followed by oil and gas companies to explore for and produce petroleum can be described as several basic steps:  1) initial interest, 2) leasing, 3) geophysical survey, 4) drilling, 5) production and 6) terminating production.  Much of the oil and gas resources in North Dakota are found in the Bakken Formation.  The next section briefly introduces this geological formation before discussing the basic steps of oil and gas exploration and production.

.

Old drilling technology primarily drilling straight down.  This approach MIGHT strike oil and if it did, the well might draw oil from an area approximately 40 acres in size.  This means a 5-acre well site on the surface was needed for each 40 acres of developed minerals.  Today's drilling technology goes straight down (often 10,000 feet) and then turns 90% and bores another 10,000 feet (2 miles?) horizontally. The horizontal bore is drilled through a layer of shale that holds the oil but the shale does not allow the oil to "flow"   So the horizontal bore is fracked which often allows oil within 300 feet of the bore to move towards the horizontal bore.  Thus each horizontal bore (each well) captures oil from an area 600 feet wide and 2 miles long.  The oil company then moves the drilling equipment, drills a new vertical shaft and a horizontal bore that goes in a slightly different direction to capture the oil from the next 600 foot swath.  This process is repeated until the entire area is covered.

.

By placing the wells next to one another and by drilling the opposite horizontal direction to cover another spacing unit, as little as 12 acres on the surface may be adequate to capture the oil from 4 sections of lands (that is, 2560 acres or two spacing units). Thus the horizontal technology means that rather than disturbing 12% of the surface (that is, 5 acre well site for each 40 acres), oil drilling is using about 1/2 of 1% of the surface for well pads (12 acres for 2,560 acres of the oil field).  It also means that there may not be a well on the surface of the mineral rights being developed.  Thus many modern mineral leases do not need to address use of the surface because the surface above the mineral rights may not be used.

.

Mineral leases in the past often addressed water usage, but that is not as critical in North Dakota because the state regulates water used for mineral development.  Similarly, North Dakota state law directs that surface damages caused by oil development needs to be compensated regardless of who owns the minerals.  So mineral leases do not need to address surface damages; that will negotiated at a later time between the oil developer and surface owner, regardless of whether the surface owner also owns the mineral rights.  Accordingly, mineral leases can be somewhat simpler today than in the past.  That is, focus the mineral lease on mineral leasing and allow issues related to water and surface damages to be resolved at another time.

.

Introduce the "rule of capture" versus the North Dakota practice of 1280 spacing unit (one mile by 2 miles).  Also clarify that the first well secures the right to produce all the oil in the spacing unit but that it will take 6 to 8 wells with approximately parallel 10,000 foot bores to capture the oil from a spacing unit.  Many areas in the Brakken formation have their first well; the oil companies will now come back to drill the 5 to 7 additional wells.  "We have only begun to drill."

Rule of capture is the legal principle that the first person to take control or capture a natural object owns it. The first to capture a fox in England centuries ago or the first to capture oil in Texas had the rights of ownership.  An outcome of such a rule is a gold rush mentality with too many oil wells too close together.  Capturing crude oil includes using the natural pressure to help push the oil to the well and to the surface.  Too many wells, for example, controlled by competing oil developers can lead to inefficient use of the natural pressure.  Accordingly, states began to regulate the location and operation of oil wells.

Likewise, there needs to be practices to assure that a mineral owner is compensated when the minerals are being developed, that is, "how do I know that the nearby well is not taking my oil from under my land".  To address this question, geologists study the earth's formation not only to locate oil but assist in determining ownership.

Furthermore, oil companies need to determine mineral ownership for the entire area that is expected to be impacted by a well before a permit is given to drill the and operate the well.

The oil in shale of the Bakken formation means the oil does not move.  This both a curse as well as a blessing.  A curse becuase so much effort is needed to raise the oil to the surface; a blessing because it is less likely the "the well on your land will be taking the oil from under my land."

.

Bakken Formation

The Bakken formation lies under a substantial portion of western North Dakota and extends into Montana and Canada, (see http://pubs.usgs.gov/fs/2008/3021/pdf/FS08-3021_508.pdf).  The oil and gas resources in the Bakken Formation are generally found in a tight geological (shale) formation that often requires hydrofracturing ("fracking") to allow the oil to move more easily (see http://www.usgs.gov/faq/index.php?action=artikel&cat=21&id=1034&artlang=en).  As discussed throughout this web site, horizontal drilling and fracking offer invaluable opportunities for the Bakken Formation but also pose some environmental concerns.

For more information about the Bakken Formation, see

.

1) INITIAL INTEREST

Before a petroleum field can either be explored or brought into production, someone (usually someone in the oil and gas industry) must take an initial interest in doing so. Considerable uncertainty surrounded the location of oil and gas resources in the past; the technology was not yet available with which to locate oil and gas resources with a high degree of certainty.  Accordingly, oil companies used several strategies in deciding whether to pursue oil and gas exploration.

  1. Research methods such as stratigraphic analysis, geophysical techniques, review of geological maps and literature, and photogeographical mapping coupled with on-site examination of rock strata out-croppings, may indicate if petroleum deposits exist in a particular area.
  2. Exploration activity in a particular area is another indication that a company not previously involved may want to explore whether other petroleum deposits may have been overlooked.
  3. Initial interest also may be established on a hunch. The hunch is still based on research, but the decision to drill an exploratory well is based on less detailed research information than the other two methods.

Due to the expanding information about the Bakken Formation in the past decade, the initial interest of oil companies is more refined or targeted.  There is less "wildcat" exploration and more strategic development.  Oil companies will contact the mineral owners when the oil company is ready to begin development.  Until then, many mineral owners will merely need to be patient as the industry progresses through the Bakken Formation.

The Oil and Gas Division of the North Dakota Industrial Commission provides information about petroleum production; see https://www.dmr.nd.gov/oilgas/.  The web site includes a web page with an interactive map with detailed information about oil well locations; see https://www.dmr.nd.gov/OaGIMS/viewer.htm.

.

PRODUCTION TECHNOLOGY

Leasing mineral rights may be an early step in oil and gas production but understanding the basic technologies being used in western North Dakota will help explain the type of issues mineral owners will want to address in a mineral lease.  The technology also influences which issues do not need to be addressed in a mineral lease.

The drilling and production technologies being used in western North Dakota at this time are different than in the past and the technology significantly impacts the issues the need to be addressed in a mineral lease.  Likewise, state laws that direct the oil and gas industry have continued to be refined by the legislature and state agencies directed to regulate the industry.  These changes also impact the relationship between the oil & gas industry and mineral and surface owners.  The discussion begins with an overview of current production technology before discussing issues to be addressed in mineral leases.

.

2) LEASING

After establishing an initial interest in a particular area, the next step for the company is to determine who owns the land -- especially the mineral rights -- and, if possible, acquire (purchase or lease) the rights to allow further exploration. The common practice is a mineral lease, rather than a purchase of the mineral rights.

A landman is usually involved in searching the public record in the county's Register of Deeds office to determine mineral ownership as well as land ownership.  The landman also has the duty of negotiating and securing a lease agreement with the mineral owners.

A mineral lease is a contract that temporarily conveys a property right to the company, not unlike any other lease.  In this case, the company that leases the mineral rights acquires the right to explore for and extract oil and gas. Each lease is negotiated and agreed upon individually.  The negotiating process usually begins with the landman offering the company's standard lease.

Initial compensation to the mineral owner for leasing the mineral rights is a bonus payment and perhaps a delay rental payment. These payments are explained as part of the discussion about the royalty clause in a mineral lease.

.

Competition for Leases

The basic geological potential for oil and gas deposits exists throughout most of North Dakota. However, it is unlikely that payments for leases will become competitive until the potential exists for production that can be integrated into established transportation systems (i.e., trucks or pipeline). Thus, access to transportation imposes a pattern of leasing activity that spreads outward from discoveries of significant quantities of oil and gas.

Advances in current exploration technology also now allow oil companies to more accurately assess the potential for oil and gas production.  Accordingly, there is less "wildcat" drilling and less mineral leasing on a "hunch".  When there is interest in leasing minerals, there is a high probability that there will be drilling activities fairly soon thereafter (but not always).

  • Even so, large areas in North Dakota quite distant from existing wells may be leased if they have production potential. Some companies are prepared to invest in the cost of holding large lease acreages, hoping that successful exploration by themselves or other companies will cause a portion of their holdings to become valuable.
  • When a successful wildcat well is drilled a significant distance from previous production, there is likely to be an increase in leasing activity. This also may occur when new information from geophysical testing gives a favorable indication of deposits.  Even though drilling information is readily available in local oil industry journals or on the Industrial Commission web site, the results of geophysical tests are seldom made known to the public.
  • Neither distance from existing production wells nor lack of recent exploratory activity is a reliable indicator of production potential. Interest in developing a particular area is best determined by consulting as many sources as possible including neighboring mineral owners, oil industry journals, and county and state officials charged with issuing permits for various phases of the exploration and production process.

Issues mineral owners will want to consider in negotiating a mineral lease are discussed on another page.

.

3) GEOPHYSICAL SURVEY

With initial exploration and lease acquisition completed, the company can begin more advanced phases of exploration. The company can begin immediately, or may postpone additional exploration to check additional information and data, or wait in "frontier areas” to see what oil and gas activity develops. In some situations, on-going activities within the company may take priority over new exploration projects.

Once the time is right, the company will begin further geophysical exploration to obtain more reliable information. Substructures of the earth are studied to localize areas where accumulations of oil and gas might occur.  With the passage of time, much more detailed information about the Bakken Formation has been assembled by oil companies; this information may diminish the level of geophysical surveying that needs to be done after a mineral lease is signed and before drilling is initiated.  For those areas where reliable information is not yet available, the oil company may conduct additional seismic exploration.

.

Seismic Exploration

The seismograph provides the only direct way of acquiring subsurface structural information without drilling a well. Shock waves, generated at or near the earth's surface, penetrate the earth's crust and reflect back to the surface from the subsurface rock layers. The reflected signals are recorded and a record obtained from which the depth of various underground formations can be measured. Ideally, such information will reveal patterns of rock formations such as faults, anticlines, and folds where oil and gas deposits have a good chance of being found. Sophisticated 3-D seismic, which requires a more intensive use of the surface, can even identify the possible presence of hydrocarbons.

Seismic shock waves may be generated by 1) detonating explosives at the bottom of shot holes 4 to 5 inches wide and drilled 25 to 200 feet in depth depending on conditions or 2) “thumper” trucks that create sound waves by pounding a steel plate against the land surface. For conventional seismic surveys, a single line of shot points and a parallel or perpendicular line of geophones (listening and recording devices) are used. The number of shot points and geophones used per mile varies with the type of geophysical information desired. In 3-D seismic surveys, a grid of shot points and a perpendicular grid of geophones are used to gather more detailed geophysical information. After the information is gathered, a holeplugging and cleanup crew finishes the operation.

With advances in drilling and extracting techniques, much of the expansion of the oil industry in North Dakota is targeting oil shale; that is geological formation where oil is present but can be more difficult to remove (compare to an oil pool).  However, the wide spread availability of oil shale is leading to highly concentrated production practices.

.

Permit man

Each geophysical crew has a permit man who contacts the surface owner and negotiates an agreement about entering on the land to explore for oil and gas. This person also informs the exploring company of the location of streams, wells, buildings, and other improvements designated by the surface owner as being sensitive to geophysical testing (N.D.C.C. §38-11.1-04.1).

As discussed on another page, a surface owner cannot stop a mineral owner or a company that has leased the mineral rights from entering onto the land to explore for minerals.

.

Surface Owners' Notice and Compensation

Prior to exploration in North Dakota, the company also needs a permit from the Industrial Commission; see N.D.C.C. §38-08.1-04.1(1).  Perhaps more important for individuals, North Dakota statutory law requires that the company 1) notify the surface owner before exploration and 2) compensate surface owner for any damages caused by the exploration process.

As an outcome of these statutory requirements, surface owners in North Dakota have an opportunity to communicate/negotiate with the company even if the mineral rights are severed from the surface rights. In addition, surface owners and tenants should be aware of specific North Dakota regulations pertaining to geophysical exploration.  If these regulations fail to cover concerns that apply to specific situations, provisions pertaining to these situations should be agreed upon in writing (as part of the "Surface Owners' Notice and Compensation").

The legislature hopes this communication between the company and surface owner culminates in an agreement as to the compensation the company will pay the surface owner.  In addition, there is an expectation that the surface owner will take steps to assure a tenant of the surface owner also is compensated for disruptions to the tenant’s surface activities, such as crop and livestock production.

.

After the Testing

State statutes require the company notify the Industrial Commission when exploration has been completed (N.D.C.C. §38-08.1-05) and that any exploratory holes have been plugged (N.D.C.C. §38-08.1-06; N.D.A.C. §§43-02-12-06 and -07).  This requirement also offers some protection to the surface owner against the risk of holes remaining open after exploration.

.

4) DRILLING

Even though a mineral lease has been entered into and geophysical studies have been analyzed, other factors will be considered by the oil company in deciding whether to drill in search of oil. First, it may cost several million of dollars to drill even a dry hole. Second, if timing is not right or drilling equipment is not available, the venture may be postponed or even cancelled. Finally, there are non-financial considerations such as potential impact on the environment.

As with the exploration process, state law requires the company, before drilling is started, to notify the surface owner in writing that drilling is about to start. This requirement is identical to what is required before the company explored the land, that is, the notice must outline the plan of work and include the Industrial Commission's form advising the surface owners of their legal rights and options.

A survey team is an essential part of the pre-drilling preparation stage. The team surveys the site and stakes out where the drilling will take place. The team also maps the location of routes to insure access to drilling locations for all necessary heavy equipment, supplies, and power.

Once the surveyors have completed their assignments and the surface owner has been notified, work-crews come in with earth-moving equipment to build access roads, level the location, and dig pits, trenches, and "the cellar" for the rig which will house some of the drilling equipment. When completed, the drilling rig and related equipment and supplies can be moved onto the drilling location so drilling operations may begin.

.

  • Click here to view a YouTube video on hydraulic fracturing by EnCana

.

Water Use

Water is essential to the drilling process, especially in the preparation of "drilling mud". The mud consists of water, special chemicals, and clays. It is used to clean and cool the drill bit, lift rock cuttings to the surface, and maintain a constant pressure in the hole to keep the walls from caving in.

After water has been used in the drilling process, it is held in a lined pond to prevent the water from seeping into groundwater or flowing into surface waterbodies.  A concern with this water is the minerals, salts and other chemicals that may now be part of the brine.  It is these other substances in the water that raises concerns about the brine seeping into fresh water resources.  For example, several drilling pits overflowed during the spring of 2011 during times of high water due to snowmelt and spring rains.

Because of the large demands for water, mineral owners who also own the surface rights should pay close attention to any lease provision regarding the use of water for operations (see Additional Considerations).  Surface owners who do not own mineral rights will need to rely on state statutory law and the opportunity to negotiate with the oil company based on the mandatory notice to discuss water usage (see Surface Owner Considerations).  State law attempts to protect surface users from adverse consequences to water resources, see N.D.C.C. §38-11.1-06. Issues relating to water use is discussed more fully in Considerations for Surface Owners.

.

Dry Hole

If drilling does not result in the discovery of a petroleum deposit, the well is plugged with cement and abandoned. Should a well prove to be productive, the well is completed (which may include hydrofracturing), and production equipment is installed. In either case, the drilling rig is “demobilized” and removed -- possibly to another well site.

Due to the extensive amount of geological information now available, only a small percent of wells drilled in western North Dakota are now "dry holes."  The oil companies are not willing to invest in drilling unless they are confident that there is a high probability of finding/striking oil and gas.

.

5) WELL PRODUCTION

A decision on whether a well is productive or non-productive is made when drilling reaches the pre-calculated producing zones. If oil or gas does not come to the surface in the drilling mud, tests can be taken to pinpoint the petroleum containing-formations. Two types of tests normally used are the drill stem test and well logging.

A mineral lease obligates the oil company to operate the well and produce the oil if a sufficient quantity is found.  This requirement is intended to protect the interest of the mineral owner who wants the mineral to be produced.  The issue becomes whether a well is producing a sufficient quantity to warrant operation. If the exploration yields a dry-hole or if it yields considerable oil, the answer is clear as to whether or not the well will be operated.  It is the marginal producing well where this becomes an issue.  The price of oil also can impact the decision; a marginal well may not warrant operation if the price of oil is low, but it may be economical to operate if the price is high.  Thus the determination of whether a well warrants production can change with a rise or fall in the market price of oil.  It is not just a matter of the quantity produced; it also is a matter of the cost of operating relative to the value of the oil produced. Mineral owners will want to address this issue of operation as part of mineral lease.

Many wells flow naturally because of subsurface pressures. In these cases, a production device with gauges and control valves, known as a "Christmas tree", is installed on the well head. On nonflowing wells, pumps must be installed.

For wells drawing from oil shale, the oil company may need to hydrofracture or "frack" the geological formation to release the oil resource so it can be drawn to the surface.  "Fracking" uses large quantites of water, and as discussed on another page, raising concerns in areas where "fracking" is becoming a common and needed production practice.  After water has been used for fracking, it too is stored in the lined pond.

Once production has begun, the well's productivity is gauged, which allows hourly and daily readings on the volumes of oil and gas being produced. These readings are not only important in calculating royalties for mineral owners, they also are important in calculating the life of a well and in prescribing what maintenance must be done to assure optimal productivity.

.

Multiple Mineral Owners

In the past, oil wells were drilled vertically; but advances in technology now make it possible to drill wells horizontally thereby allowing the process to capture more of the oil and gas resource.  Horizontal drilling reduces the number of well sites necessary to develop the oil and gas resources, thereby reducing the impact on surface activities, such as livestock and crop production.

  • For a discussion of horizontal drilling, see Energy Information Administration. Drilling Sideways -- A Review of Horizontal Well Technology and Its Domestic Application. Office of Oil and Gas, U.S. Department of Energy, Washington, DC 20585, April 1993, < http://tonto.eia.doe.gov/ftproot/petroleum/tr0565.pdf>, July 12, 2010.

But this technology increases the number of situations where one well is producing oil for several mineral owners.

Nature does not follow property boundaries as defined by humans, so a well may be tapping into an oil deposit that underlies several tracts of land where the mineral rights are owned by different individuals.  Each mineral owner is entitled to their "share" of the production, so a procedure was created by which oil produced from a well that is drawing from tracts owned by different mineral owners is equitably divided among the mineral owners based on their correlative rights. The concepts of pooling and unitization are discussed on other pages.

    • Pooling -- dividing the oil production from a well that is drawing from a deposit owned by more than one mineral owner.
    • Unitization -- allocating oil production and costs associated with wells that are drawing from a deposit with more than one well and most likely more than one mineral owner (N.D.C.C. §§38-08-09 through -10 and N.D.A.C. §43-02-03-77).

Mineral owners, in their mineral lease, can grant an oil company considerable flexibility in how the company wants to pool, as well as unitize production.  Alternatively, mineral owners can grant the oil company no discretion to pool or unitize, in which case the oil company will petition the Industrial Commission to establish the pool or units.  As discussed on another web page, mineral owners may want to decide to not grant the oil company this authority in the mineral lease, but instead rely on the administrative process of the Industrial Commission.

.

Cost of Developing a Well

Another question is whether the mineral owner will be expected to pay a portion of the cost of developing and operating a well. If this is agreed to in the mineral lease, the oil company is authorized to reduce the royalty payment to the mineral owner by the cost the mineral owner agreed to bear.  This point also is discussed on another web page.  That discussion introduces the concept of a risk penalty for mineral owners who do not enter into a mineral lease (see N.D.C.C. §38-08-09.4(3) and N.D.A.C. §43-02-03-16.3).

.

Stratifying Mineral Interests

Advanced exploration technology is revealing that North Dakota may have several levels of oil shale; perhaps at 10,000 feet below the surface and again at 14,000 feet below the surface, for example.  With horizontal drilling, much of the development is focused on the higher level, but there may be opportunity in the future to redrill some locations to lower depths.  Mineral owners are now beginning to lease their mineral interest in layers, such as "surface to 12,000 feet in depth".  This implies that if a developer wants to drill deeper in the future, for example, to 14,000 feet, a new mineral lease must be negotiated.

Advances in exploration and production technologies are creating a need for mineral owners to be more sophisicated in understanding the mineral industry as well as understanding their opportunities as the mineral owner.

.

Surface Use During Production

Storage tanks may have to be installed at the well site, and pipelines or tank trucks will be used to move the crude oil to market. Both methods have advantages and concerns. Truck transportation increases traffic on rural roads and bridges which in turn increases local government maintenance costs. Some of these costs are subsidized by oil and gas production taxes, although, in new areas of development, there may be a time lag between when these funds are needed and when they are available.  Gathering lines and pipelines require rights-of-way and additional surface disruption.  Pipelines, which must be used to transport natural gas, are usually cheaper in the long run, but the size and the life of an oil field determines whether the oil company will use truck or pipeline transport.

Surface owners will be interested knowing how production might impact use of the surface.  An understanding of the regulation of surface use by an oil company also may be helpful.  The following list identifies some North Dakota regulations and the topic it addresses.

    • N.D.A.C. §43-02-03-18:  well spacing (for example, depending depth and type of well, no more than one well per 40 acres, 160 acres, 320 acres or 640 acres)
    • N.D.A.C. §43-02-03-19: construction of a drilling site (for example, stockpile topsoil, slope drill site to divert surface drainage, construct a reserve pit, locate a reserve pit so not to block natural drainage, possibly fence the reserve pit, reclaim the site)
    • N.D.A.C. §43-02-03-19.1:  fencing (for example, fence around pits and ponds containing saltwater or oil)
    • N.D.A.C. §43-02-03-19.2:  disposal of waste (properly dispose of waste)
    • N.D.A.C. §43-02-03-19.3:  storing of waste (something more than an earthen pit is needed to store saltwater, drilling mud, crude oil, or waste oil)
    • N.D.A.C. §43-02-03-49: positioning oil storage tanks (oil may not be stored in underground or partially buried tanks; dikes must be erected around oil tanks)
    • N.D.A.C. §43-02-03-53:  handling saltwater (saltwater liquids must be processed, stored, and disposed of without pollution of freshwater; at no time shall saltwater liquids be allowed to flow over or pool on the surface or infiltrate the soil; dikes must be erected and maintained around saltwater tanks at saltwater handling facility).

Even though these regulations are directed toward the oil company, their application can impact the surface owner, e.g., how many wells, roads, tanks, pipelines and other facilities will the surface owner have to farm around, where they will be located, how much land will be used as the well site, and other concerns.

.

Keeping the Well Productive

Periodically, “reworking” operations are performed to insure efficient operation of the well. Work-over crews clean the well by getting rid of fluids and sands which may have gathered in the hole. They also may "refrack" the well to open cracks in the formation to allow the oil or gas to flow more freely.

Another practice to increase oil and gas production is to force or inject water, for example, down a nearby well to push the oil or gas to another well where it can be pumped out.  Extensive quantities of water may be needed for injection into oil-bearing strata during production to push oil out a second nearby well, especially during any secondary recovery operations.  Again, surface owners need to understand the potential impact on water resources.  Although injecting water into a well to push oil out other nearby wells increases production and disposes of some brine, the practice raises questions and uncertainties as to possible impact on other resources, especially groundwater.

Using one well to inject water to push oil and gas to another well also can raise questions among mineral owners, such as "do I share in the oil pumped from a nearby well when my well is no longer being pumped, but instead has been converted to an injection well?"  These production practices, such as converting one oil well into an injection well in an effort to increase oil production in a nearby well emphasizes the importance of unitization.

.

6) Terminating Production:  Clean-up After Production

For various reasons, wells stop producing.  State law requires that the site be reclaimed and directs the Industrial Commission to oversee that process.

Plugging the well and reclaiming the site certainly are of interest to the surface owner.  In addition, N.D.C.C. §38-08-23 requires that information about the location of a reserve pit be filed when a site is reclaimed after drilling is completed and N.D.A.C. §43-02-03-34 requires that the well plugging process protect groundwater.

Drying and burying the lined pond also is part of the site clean-up, but again, there is uncertainty as to whether the residue from the brine can be confined in the long term.

With respect to the mineral owner, shutting down a well means no more royalty income, so a question for the mineral owner often is whether the company appropriately decided to cease production; similar to the question of whether there is enough production when the well was initially drilled to commence production or declare it a dry hole.  This topic is discussed on another page.

.

Observation and Recommendation

The variety of topics discussed throughout this web site illustrates many factors that should be considered when negotiating a mineral lease. The list is by no means complete nor will all factors pertain to every mineral owner. However, the need for knowledgeable legal advice in negotiating a lease should be evident.

Before making a final decision, the mineral owner and attorney should work through the possible outcome of each leasing situation. They need to select those lease provisions that will adequately protect BOTH the mineral owner's interest and the company's ability to carry out an effective development program.

Likewise, surface owners want to consider issues that impact them when when negotiating compensation for surface use.

.

Next Page

The next page discusses how mineral rights and surface rights become severed and how this can impact mineral leasing.

Email: david.saxowsky@ndsu.edu

This material is intended for educational purposes only. It is not a substitute for competent legal counsel. Seek appropriate professional advice for answers to your specific questions.

This material is protected by U.S. copyright laws.

Creative Commons License
Feel free to use and share this content, but please do so under the conditions of our Creative Commons license and our Rules for Use. Thanks.