My brother got feed up last winter and signed for $225 with NMA of 89.13, 3 years, 16%.
The rest of my family is holding out for a definition of "capable of producing" clause, environmental hold harmless and few other clauses. It is Whiting through Empire and I am currently unleased.
I am hoping that Maus 23 goes H due South which would hit us, any chance of that? Could they be putting in the wells before winter and can you frac a V well in the winter?
When Empire phones I am thinking $1,000 20% plus my clauses.
Your brother's terms are the highest I've heard of in that area. Since it is not a Bakken play, the Golden Valley lease offers are nowhere near the same as those over in Mountrail or Dunn Counties. Securing $1000 or 20% seems unrealistic based upon what has been paid, but the clauses should not be an issue. Yet you are right to think big and then negotiate from there.
As to if Whiting did re-enter the "Maus" well to go horizontal, it is likely they would go north from Sec. 22 into Sec. 15. That is the pattern which fits the other spacing Whiting already has in that township. If they pool more 1,280 acre units then you may expect Sections 27 & 34 to be combined, and Sections 26 & 35 combined in another. However, "Maus" was a vertical well. So if Whiting drills more vertical wells there they won't need to create any new 1,280 acre pools.
Fracking during the winter is more difficult and costly but it is done all the time. Yet it looks unlikely Whiting will drill any more wells there this year. Their Sept 2011 corporate presentation suggested the "Nistler" well will be their final one drilled during 2011. There was no mention of their plans for 2012.
There is nothing wrong with verticle wells. They can return more profit per dollar spent than a horizontal well. I'd stick to my guns on the royalty. Do you ever wish you'd bought gold at $900 an ounce with the prices where they are today ? Your mineral rights are an appreciating asset just like gold. If it's not a matter of must sell, just let it keep appreciating. When you lease your minerals, your appreciating asset becomes their appreciating asset. Did you know that many times they borrow money against your undrilled leased acres? And that they could borrow more than what they paid you to lease them ? I wish you luck in your oil dealings.
Your brothers signing at three years starts the clock ticking. This lease will undoubtedly make verticals an attractive goal for Whiting to hold the lease by putting down verticals within this time frame. V wells can be fracked and with modification of the fluids can be fracked in the winter if it is not too cold. I could be wrong but I think the verticals will be the well of choice in the Maus field and do not expect to see them turned into H wells at least at this early date. The terms you are thinking of are on the high end as Eastern MT suggests. It would seem to me that Whiting would only be interested in verticals in this area on those leases where the clock is ticking, and if they put down an H in that area my feeling is that it would come along at a later date when they could then force pool those who have been holding out for unheard of 25% royalties. In this scenario those holding out for such high royalties would be penalized and end up getting next to nothing for their greed. Also while playing tug of war over clauses that may or may not be called into play at a later date would not seem to get one very far as the main terms if interest in the lease are the bonus and royalty along with the term length. It has proved true that the Nistler was the last drilled in the area in 2011, and the bore goes south. It appears that there are preparations for another H north of the Nistler, and also that bore is expected to go south as well. The direction of a bore is determined by the formation below and how they expect to get the maximum amount of oil and not determined by what leases are signed as force pooling eliminates their concern in that area. My advice is to ask for fair terms, remember that a lease should be a compromise for the good of both owner and producer.. Keep it simple and good luck!
Zeb, the verticle wells theory sounds good unless, the lessor has effective pugh clauses. You can't pool and hold everyone in a 1280 with a verticle well. I predict that if an operator really wants to hold 2 mile spacings they will drill H wells, that may take 10 to 15 years to pay out, but will also end the bleeding out of having to lease at higher rates every cycle. If the mineral owners do not have effective pugh clauses, the operator can drill the verticle well and consider the extra held acres a gift from heaven, but I doubt it would be a clean sweep as it would with an H well. I think Joels brother leasing at $225 an acre is not a big enough factor to force the operators hand.
Thats correct R W, in theory, in practice though, pugh clauses most often do not hold up against litigation unless the wording is very area specific. A pugh clause that stands in one jurisdiction may not in another for differences in wording and/or judicial opinion. In other words, a pugh clause is always open to interpretation by the courts, and thereby possibly opening an avenue for appeal to hold a lease once production has become less than profitable. There are a few other clauses that could allow a lease to be held without production for a short period of time as well, such a clause would be a gas clause for example. Im sorry you somehow got the impression that I was saying that pooling applied to vertical wells, I did not intend that result. Instead, I offered that it was possible for the producer to choose to go with a 1280 spacing unit and produce from and H well, thereby making it possible for them to force pool any holdout leases within the spacing unit. An option you can be sure they may have considered at times. The state laws support development, in large part, through the use of pooling laws, and in the final days of development of a field holdouts will get force pooled and penalized. Obviously then it follows that it is Empires goal to pave the way by obtaining and holding with verticals on those leases in the spacing unit that are available with reasonable lease terms when it becomes a realistic goal for the drilling teams to complete on time. The time to start the clock so to say. Yes, payouts take years indeed, and later when those years have passed source rock pressures have dropped those payouts will take even longer. Field maintenance is monitored by the state but in practice it is yet a science as much as horizontal drilling is. Bottom line is trying to find the fair terms if you wish to lease.
Fellows, you both make good points. Vertical wells make economic sense here but they won't hold WLL's 100,000 plus acres in this "Big Island" prospect. Whiting began leasing this area in ernest in 2008 with 5 year terms. So on most of their acres they still have a year or two to either drill or get ready to pay again. I think Whiting sees potential there but is still trying to define the exact extent of the productive area.
Remember their initial Jones well (up in 143-105) was a bust. Then "Maus 23-22" (in 141-104) came in with an IP of 282, now they reported "Peplinski 34-9 (in 141-105) with an IP of 200. Both wells were verticals producing from the Red River formation. Those two are apx. 9 miles apart.
We're still awaiting word on two more inbetween; "Brookhart 11-14" and "Nistler 21-25H" (in 141-105). They also just filed a permit for another vertical "Quale 21-30" in 141-104. All these wells appear to be roughly along a NW to SE trend line Whiting is working. So Whiting may have discovered a Red River field to develop yet it is very uncertain how wide spread (or compact) this may be. Other formations may yet prove to be commercial as well. Yet bottom line to any wondering if they should lease; It is still quite possible large swaths of this area may never produce oil so for most folks securing a good lease would be the prudent thing to do.
I would add to this that the Nistler is in the Scallion formation yet could be reworked to the Red River. I have heard that the Tyler is present in a large part of GV county as well. I look forward to seeing how the development of the tight oil fields will progress.
Eastern MT said:
Fellows, you both make good points. Vertical wells make economic sense here but they won't hold WLL's 100,000 plus acres in this "Big Island" prospect. Whiting began leasing this area in ernest in 2008 with 5 year terms. So on most of their acres they still have a year or two to either drill or get ready to pay again. I think Whiting sees potential there but is still trying to define the exact extent of the productive area.
Remember their initial Jones well (up in 143-105) was a bust. Then "Maus 23-22" (in 141-104) came in with an IP of 282, now they reported "Peplinski 34-9 (in 141-105) with an IP of 200. Both wells were verticals producing from the Red River formation. Those two are apx. 9 miles apart.
We're still awaiting word on two more inbetween; "Brookhart 11-14" and "Nistler 21-25H" (in 141-105). They also just filed a permit for another vertical "Quale 21-30" in 141-104. All these wells appear to be roughly along a NW to SE trend line Whiting is working. So Whiting may have discovered a Red River field to develop yet it is very uncertain how wide spread (or compact) this may be. Other formations may yet prove to be commercial as well. Yet bottom line to any wondering if they should lease; It is still quite possible large swaths of this area may never produce oil so for most folks securing a good lease would be the prudent thing to do.
I agree with Eastern MT that securing a good lease may be the prudent thing to do as some acreage may never produce. I think there may be another less palatable prudent thing to do and that would be to resist being drilled until the oil under you becomes more valuable as it may do in the next 20 years. If oil were $40 a barrel they wouldn't even be talking to you, if oil were $150 a barrel a well that wouldn't cut it now, could be considered a good well. I realize this is the long view, but I think it should be considered.