Offset Wells in the Western Basin - Millions of Dollars Owned to Owners!

There are numerous potential drilling locations in the Western Canadian Basin that go undrilled even though they can be easily identified through an offset well or offset wells.

An offset well is any well that is drilled within a section or quarter section basis either laterally or diagonally around a parcel of land. Imagine a tic tac toe board and the 9 squares are parcels of land. If you look at the middle square then an offsetting well or offset wells would be any well or wells that are drilled in the 8 squares that surround the middle square.


Offset wells are important to monitor for numerous reasons such as:

• Compensatory royalties owed to freehold land owners
• Potential notice from the government on crown lands from freehold offsets
• Drainage reports on undrilled lands
• Identify drilling prospects via production numbers from other wells
• Identify a better producing zone than the one you are currently producing in

In the case of freehold lands, an offset well could trigger a clause in the land lease that would cause a "Drill, Drop or Compensate". Basically, if there is an offset well or offset wells that was drilled after the effective date of the land lease and the freehold owner has farmed out the land to an oil and gas company, then it potentially triggers the clause that says the oil and gas company has usually 6 months to drill a well, drop the lease or compensate the freehold owner. Typical leases denote that the oil and gas company will pay 50% of the royalty based on production from the offset well. There are circumstances where there are more than one offsetting well, so the freehold land owner should see which one has the best production history that goes back to the effective date. Please note, each lease is different, so there may be different clauses in the lease than what is denoted above. If you have or think you have an offset well against lands that you own, you should consult an attorney for help.


Example of Offsets in Western Canada

My company, Argentis Group has a process to run lands for offsets and we have used public data to identify potential offset wells. One of the companies that we have looked at has over 6,000 wells surrounding their undrilled freehold lands that are listed in public data. Of these 6,000+ sections of land, there are 1,300+ potential locations that have an offset well producing 20 barrels of oil equivalent or greater. If you look at this companies undrilled crown lands, there were over 54,000 sections that were undrilled with over 10,000 offset wells producing more than 20 barrels of oil equivalent.

Offset wells can be significantly costly if not followed. If a freehold land owner has a 5% royalty on an oil well and the average price is $96 Canadian for the next 8 years according to the Sproule price forecast, knowing that the average production from an oil well in the western basin is 40BOED, then this is equal to $70,080 per year in royalties owed to the freehold land owner. Over the average life of a well, approximately 8 years, this means that a freehold land owner could be out over $560,000.

The major reason that offset wells go unnoticed is that it is extremely hard to manage this process. In essence you are looking for wells that competitors are drilling around your lands. A lot of the time, oil and gas companies know what is going on in the core areas, but typically do not know what is going on in their un-core areas. Another major reason is that wells are being drilled all the time and oil and gas companies would have to continually monitor large amounts of land which they do not have time to do.

Argentis Group does have a process that allows us to utilize your land information to show you where wells are producing within a section or quarter section basis around your crown and freehold lands. This information can be run in numerous ways to show the following on freehold or crown lands:

1. Un-drilled lands with an offset well or offset wells drilled after an effective date of a lease which is producing in an offseting zone
2. Un-drilled lands with an offset well or offset wells drilled before an effective date of a lease which is producing in an offseting zone
3. Un-drilled lands with an offset well or offset wells drilled after an effective date of a lease which is not producing in an offseting zone
4. Un-drilled lands with an offset well or offset wells drilled before an effective date of a lease which is not producing in an offseting zone

If you are an individual freehold land or and oil and gas company and you should be keeping close tabs on your lands and rights. Argentis Group can help you with this. Please feel free to contact me at info@argentis-group.com.