159-98 Williams county lease rates

North Dakota Mineral Rights Williams County, ND
21

So going the non-consent way I wouldnt be receiving any money until the well or wells are producing... Correct ?

r w kennedy said:

Because with ND forced pooling law, with good wells I would basically be trading places with the operator. Their 50% risk penalty from me being non-consent would probably leave them with about 10%- 20% of the profit while I would keep 80% of the profit, less cost of production and taxes. Other than making 3-4-5 times as much from the sale of my oil, no special reason.

For goodness sakes, you even get a 16% statutory royalty until the well is paid for and the risk penalty recovered, then 100%, less the often laughably low cost of production. I have one well that costs about $1.50 an acre per month to produce If the well never pays off, you owe nothing out of pocket. I've missed out on $3,000 per acre bonus that they offered which I figure is less than 1% of my acres value but I will receive 300% or more money than leasing for 20%. royalty.

Lessees/operators get alot for that sub 1% up front. I get 75% as much royalty as anyone else who leased in the spacing, more than 75% if they leased for 3/16 until the penalty is paid off. I can give up the bonus and take a little less for 2-3 years to make 4 times as much for the rest of the life of the well.

Put another way, since you know you are going to get 16% no matter what, by leasing you are selling 80% or more of your oil for the maybe 1% bonus and up to 4% more royalty for a couple years. I expect my revenue to pass what I would have received as leased within the first 6 months or less after my well and penalty are paid off.

At $100 oil operators are making about $60 a barrel, after paying for the well AND paying up to 20% royalty, I on the other hand will not have to pay anyone a royalty so I will actually as owner make 16% to 20% more than the operator for each of my barrels of oil than they will from their production of the other acres because they do have to pay a royalty from proceeds.

With wells that will pay off the penalty in 3 years or less, no out of pocket risk, at least 75% as much royalty as everyone who did lease receives, I consider it a no-brainer, that is if you knew you could do it. Of course it's not an option if you don't know it exists. If the option and benefit of being non-consent, in it's true form and not how a landman may slant/ get wrong or outright tell untruths about, were widely known, the laws on non-consent would have been changed in ND. I don't think they will change the laws now because the great majority of the prime producing acres are already HBP rendering a law change almost moot.

My brother is with me in this and believe me, he IS the bird in the hand guy but after I explained it to him, he could not resist. We have been getting our checks just as if we had leased, just a little smaller and one day it will be BAM, more money per month than those who leased ever received even when the well was new and because the well has already leveled off, our checks will only diminish slowly over time. It's a wonderful deal for us. If you have undrilled minerals in ND you should read and understand NDCC 38-08-08 you may not want to lease afterwards.

There are pundits who say you would be responsible for plugging costs of the well. That is only true if you aren't smart. You have the right by law to assign your interest in the well to the operator at any time, the salvage value will be determined and they will have to cut you a check. How would you like to be paid for the plugging of your well instead of having to pay for it?

If you go non-consent, you have years to learn the business. If you learn the business, you will do well. You could sell out at any time after payout, sell half, whatever and make the amount you would have received in royalty over 20 years in 4-5 years, if you want. My operators still send me lease offers, LOL. There are only 2 things you can do that will end your options, one is sell which leaves no option and the other is lease which only leaves the option to sell. As an owner, you could cut any kind of deal you can think of. I like having options, it makes me comfortable.

Hilary Sorenson said:

It was the best option for the owner at the time. I do know of some who did not sign. I'm curious though Mr Kennedy why you would not have signed
22

was that question to me kevin?

Kevin said:

I would not take that lease. My brothers have interest in 159-97. There last offer was $2500 an acre from an investment company once they had an AFE in hand. They decided to go non-consent. If you want the investment companies info let me know. Kodiak just recently drilled on their section. Also what royalty was offered?

23

Hilary,

I was asking Dale what royalty he was offered.

Dale,

Once the well is producing you get 16% royalty and the remaining 84% goes towards your costs of the well and the 50% penalty. 80 divided by 1280 is .06 take that times a average 10 million dollar well equals $625,000 times your 50% penalty equals 937,500.00. The %84 is going towards paying off your debt to the oil company of $937,500.00. It looks scary with all the big numbers but that 84% going towards your debt cuts it down rather quickly. Once you have paid that back, you will receive 100% royalty minus your cost of monthly expenses. Find out what a well close to you has produced and do the math to figure out how long before you are at 100%. Mine figured 7-10 yrs and I included my missed bonus. So I will have 20 years of 100% royalty and everyone else will be at 16% and 20%.

24

What if it turns out to be dry ? I suppose I would owe the drillers mega bucks. If the oil company ends up paying 100% royalty then why would they keep pumping ? Im researching this for a relative who is 90 years old and could use some cash.

Kevin said:

Hilary,

I was asking Dale what royalty he was offered.

Dale,

Once the well is producing you get 16% royalty and the remaining 84% goes towards your costs of the well and the 50% penalty. 80 divided by 1280 is .06 take that times a average 10 million dollar well equals $625,000 times your 50% penalty equals 937,500.00. The %84 is going towards paying off your debt to the oil company of $937,500.00. It looks scary with all the big numbers but that 84% going towards your debt cuts it down rather quickly. Once you have paid that back, you will receive 100% royalty minus your cost of monthly expenses. Find out what a well close to you has produced and do the math to figure out how long before you are at 100%. Mine figured 7-10 yrs and I included my missed bonus. So I will have 20 years of 100% royalty and everyone else will be at 16% and 20%.

25

They still have 1200 acres that they are making huge profits on. Myself and my uncle both went non consent on 41 acres. They still drilled a well knowing they would only get a 50 percent penalty out of us. As far as a dry well, I think that number in nd is low like 1 percent chance. I hope someone else on here will clarify.

Also you can lease half and go nonconsent on the rest. It is all what ifs until your lease has expired.

26

Say in a 1200 acre parcel. are they drilling a single well or several ? I see these well producing an initial amount but dont know how much land the well is covering.

Kevin said:

They still have 1200 acres that they are making huge profits on. Myself and my uncle both went non consent on 41 acres. They still drilled a well knowing they would only get a 50 percent penalty out of us. As far as a dry well, I think that number in nd is low like 1 percent chance. I hope someone else on here will clarify.

Also you can lease half and go nonconsent on the rest. It is all what ifs until your lease has expired.
27

They are spaced 1280 acres. In order for them to get all the oil they have to drill multiple wells. Also do not forget there are multiple producing formations as well. So it could be 4,7,12 wells per formation. If I was 90 years old and wanted to leave something for my family I would certainly look long and hard at my options. Also I would set up a mineral trust. I'm guessing even at 16% royalty you will still be getting $4000 a month. That is based on wells I have south of you. I will let you know when my brothers comes off the confidential list. His well is close to your acres.

Here is an article about multiple wells: http://www.thebakken.com/articles/504/realizing-the-bakkenundefineds-potential

28

Thanks Kevin.. I watch the ND oil site for the nearby wells to come off the confidential list. If I recall correctly the Schilke well came in at around 570 barrels so they could be drilling several Schilke type wells on the same 1280 acre section ? Excuse my ignorance.

29

Yes eventually they will.

30

Dale, if you get bupkiss from the well because it was dry, no oil there, they would place a lien against the production of the MINERALS THAT WERE NOT THERE, that they could not find. If there is no Oil there, putting a lien against the production of it is about as meaningful as putting a lien against the air in my back yard. If someone decides to drill yet another well after having drilled a dry one and having a lien placed against the production of the minerals that were not there, I would go non-consent again. You owe nothing out of pocket for the drilling of the well. The operator can only recover from the PRODUCTION of the minerals.

Why would the operator keep pumping? Because they will still be making money off of the minerals of people who leased. If nobody in the spacing leased to the the operator, they wouldn't have the right to drill a well.

If 3/4 of the acres were leased and 1/4 were not, the oil company would have a choice, either drill it and accept that they will make less because they didn't lease everyone, or walk away from the few million dollars that they spent already to lease and run title on the spacing. There is an old saying that an oil man used to say, don't get mad at your money, which I take to mean that if you are only going to make $20,000,000 profit, don't be angry because it's not 30,000,000. They will drill to keep the profit from the acres they do have leased, also because they have already sunk mullions into the leasing and title that they don't want to walk away from.

Lastly, I hope your relative lives to be 120 but if you need cash near term, you really need the lease bonus or sell the acres because while the operator will still drill the acres, they only have to do it ahead of the lease expirations so it might be 2 years before they drill and if it too 3 years after that to pay off the penalty and start collecting 100% less costs, it might be 5 years before the money rolls in full tilt for a non-consent.

It's not overnight, of course with a lease, it can be never, unless you have alot of net acres. It is just too hard to make any real money when you convey 80% of what you have for 1% or less of it's value.

Remember the Beverly Hillbillies? Jed Clampet was not a lessor, he was an owner. Lease money might have fixed Jeds fence and spruced up or even built a new farm house with electric lights and running water but it wouldn't have put him in Beverly Hills.

dale robinson said:

What if it turns out to be dry ? I suppose I would owe the drillers mega bucks. If the oil company ends up paying 100% royalty then why would they keep pumping ? Im researching this for a relative who is 90 years old and could use some cash.

Kevin said:

Hilary,

I was asking Dale what royalty he was offered.

Dale,

Once the well is producing you get 16% royalty and the remaining 84% goes towards your costs of the well and the 50% penalty. 80 divided by 1280 is .06 take that times a average 10 million dollar well equals $625,000 times your 50% penalty equals 937,500.00. The %84 is going towards paying off your debt to the oil company of $937,500.00. It looks scary with all the big numbers but that 84% going towards your debt cuts it down rather quickly. Once you have paid that back, you will receive 100% royalty minus your cost of monthly expenses. Find out what a well close to you has produced and do the math to figure out how long before you are at 100%. Mine figured 7-10 yrs and I included my missed bonus. So I will have 20 years of 100% royalty and everyone else will be at 16% and 20%.

31

Dale, you would not receive a bonus as non-consent but you would receive 16% royalty from the oil production as Kevin said.

32

Does anyone have additional information on 154-101? We have acreage in Sections 25 and 26 and just received a lease offer from a company called Bull and Bear Resources, LLC. Thanks

33

Mr. Galt, you should know that there is already a well drilled in the 154-101-25/36 spacing and it is a very fine well named Williston 25-36 1H operated by Statoil, which used to be Brigham, if nothing else, you have two potential very interested lessees, contact Brigham/Statoil. Cumulative production of 232,526 bbl oil from December 2009 to December 2013 which is the last month I can see froduction for. Also cumulative production of gas in the same time period is 228,378 MCF {thousand cubic feet} none of which was sold and you will not be paid for in any case, according to the reports.

I would not lease my acres in that area for all the tea in China. You already have a well, why give away 80% of what you own for 1% of it's value? I would try to pull together the money to participate in the well to avoid the 50% risk penalty of being non-consent because the well is paid off already from production.

Failing that, I would participate in as much as I could gather money for and be non-consent in the rest. You don't just have to lease or not lease, the power is in your hands to negotiate for any deal you want, you could probably sell a few acres to participate in more acres.

This is all dependant on if you are actually the legal owner of mineral acres in that spacing. The map shows that there is a navigable waterway across section 25, covering about 1/3 of the section and the state may, probably is, claiming the minerals underneath to the high water mark of the lake/ river bed. If you have no acres or are left with only a few, it would make it even more imperative to me not to lease. If they come to you with a lease offer for 50 acres @$2,000 per acre and 45 of them are claimed by the state, you won't ever see the $100,000 bonus but only $10,000 because of a proportionate reduction clause in the lease and the state will probably collect more than $10,000 per acre in bonus for their lease. If the goal is to actually make money and lots of it, I would not lease. I hope your mineral acres are not under the water.

Do not be afraid to spend some money to get help, if you need it, to make sure you own all the acres you think you do. I suggest you look at the GIS map on the NDIC site immediately to get a general idea of whether the acres you think you have are under the water. I really think it is terrible that the state claims the minerals, many landowners donated the surface acres for the lake and it's not like the state needs the money.

John Travis Galt said:

Does anyone have additional information on 154-101? We have acreage in Sections 25 and 26 and just received a lease offer from a company called Bull and Bear Resources, LLC. Thanks

34

Wow r w kennedy I learn quite a bit from your posts. You know your stuff!

35

What do you know about Diamond Resources ? Are they reputable ?

r w kennedy said:

Mr. Galt, you should know that there is already a well drilled in the 154-101-25/36 spacing and it is a very fine well named Williston 25-36 1H operated by Statoil, which used to be Brigham, if nothing else, you have two potential very interested lessees, contact Brigham/Statoil. Cumulative production of 232,526 bbl oil from December 2009 to December 2013 which is the last month I can see froduction for. Also cumulative production of gas in the same time period is 228,378 MCF {thousand cubic feet} none of which was sold and you will not be paid for in any case, according to the reports.

I would not lease my acres in that area for all the tea in China. You already have a well, why give away 80% of what you own for 1% of it's value? I would try to pull together the money to participate in the well to avoid the 50% risk penalty of being non-consent because the well is paid off already from production.

Failing that, I would participate in as much as I could gather money for and be non-consent in the rest. You don't just have to lease or not lease, the power is in your hands to negotiate for any deal you want, you could probably sell a few acres to participate in more acres.

This is all dependant on if you are actually the legal owner of mineral acres in that spacing. The map shows that there is a navigable waterway across section 25, covering about 1/3 of the section and the state may, probably is, claiming the minerals underneath to the high water mark of the lake/ river bed. If you have no acres or are left with only a few, it would make it even more imperative to me not to lease. If they come to you with a lease offer for 50 acres @$2,000 per acre and 45 of them are claimed by the state, you won't ever see the $100,000 bonus but only $10,000 because of a proportionate reduction clause in the lease and the state will probably collect more than $10,000 per acre in bonus for their lease. If the goal is to actually make money and lots of it, I would not lease. I hope your mineral acres are not under the water.

Do not be afraid to spend some money to get help, if you need it, to make sure you own all the acres you think you do. I suggest you look at the GIS map on the NDIC site immediately to get a general idea of whether the acres you think you have are under the water. I really think it is terrible that the state claims the minerals, many landowners donated the surface acres for the lake and it's not like the state needs the money.

John Travis Galt said:

Does anyone have additional information on 154-101? We have acreage in Sections 25 and 26 and just received a lease offer from a company called Bull and Bear Resources, LLC. Thanks

36

Mr. Kennedy, as others have stated previously, I've learned so much from your educated posts. Thanks so much. The Williston well has been very productive and a great benefit. I don't plan on leasing per your direction, but I am considering participating. I am also aware of the litigation going on regarding riparian rights with the state and I definitely agree with your sentiments.

37

Mr. Galt, no pressure, just my idle curiosity, would you mind sharing the dollar amount and royalty percentage of the lease offer? I'm sure some others would be interested also.

38

Dale, a lawyer is hard to find for a lawsuit in ND right now. I have one looking into suing Diamond Resources.

My personal opinion is if you shake hands with them, count your fingers before and afterward. So, in a word, NO!

dale robinson said:

What do you know about Diamond Resources ? Are they reputable ?


39



r w kennedy said:

Dale, a lawyer is hard to find for a lawsuit in ND right now. I have one looking into suing Diamond Resources.

My personal opinion is if you shake hands with them, count your fingers before and afterward. So, in a word, NO!

dale robinson said:

What do you know about Diamond Resources ? Are they reputable ?


40

Thanks , thats who made the offer.. I believe they are an arm of Continental.

dale robinson said:



r w kennedy said:

Dale, a lawyer is hard to find for a lawsuit in ND right now. I have one looking into suing Diamond Resources.

My personal opinion is if you shake hands with them, count your fingers before and afterward. So, in a word, NO!

dale robinson said:

What do you know about Diamond Resources ? Are they reputable ?