I did try to read that the 38-08-08, hard to comprehend when I do not know the terms. So if you do not lease, how does it get done? I pay them to drill?
Nope. The operator pays for the drilling just as if you had leased. He does get a 50% of actual cost of drilling and completing the well penalty for fronting the money, and taking care of everything until your portion of the well is paid for and he recovers the risk penalty for your share.
Since the operator is just recovering the 8k per acre he spent for your part of the well, that's a wash. The operator only makes 4k per acre from the risk penalty. You get paid a 16% statutory royalty until the operator recovers $12k (well and penalty) per each of your acres. If each acre produces $50k, that would leave $38k that the operator did not make per acre. 20% of $50k before taxes is $10k. I would take $38k over $10k any day.
Any guess on who gets that $38k, aside from the part the state takes in taxes? The better the well the greater the disparity will become also.
Out of curiosity, which terms in the NDCC 38-08-08 did you not understand?
I think all the info is just overwhelming but your explanation makes more sense. Thank you so very much for the insight R.W.
RW. Thank you for this excellent summary of what NDCC 38-08-08 means. Is there typically a critical number of leased acres per unit that an operator would need before they would feel comfortable to begin? If a mineral owner participates do they expose themselves to liability. If a mineral owners is a non participator without a lease are they exposed to any liability.
FrackinAndy, if the well never pays out and recovers the penalty, the operator could place a lien against the production and only the PRODUCTION of your minerals.
Those would be the minerals that the operator could not find in the first place. If anything IS produced, you still get your 16% of it according to law.
If you participate, you are exposed to full liability, you may well want to have a joint operating agreement with the operator to be under their insurance umbrella.
After discussions with $400 per hour lawyers, I believe as non-consent you are not responsible for torts committed by the operator. Your oil is sold before it ever leaves the well site, that is part of the reason you are not paid the WTI price, because transportation was already deducted from the price. Can you be sued? Anyone can be sued for anything, whether you can be successfully sued is another matter.
You could transfer ownership to an LLC, not lease it to an LLC because if the LLC held it by right of lease the LLC would be subject to a 200% penalty.
After your interest becomes a full working interest, then your LLC could be disolved and you can start a new LLC to which you could lease to for 90% royalty with all clauses favorable to you (including lease cancellation for any number of reasons) because your lawyer is writing the lease, the LLC would pay the operating costs out of their 10% and if someone sued the LLC, they would get your lease and still have to pay you the 90% royalty, pay you the 90% royalty on any future wells and the successful litigant would have all the headaches of being a working interest for your acres. I might want to kiss them.
Broke LLC's are common, you could loan the LLC money to keep it afloat if needed [like Chesapeake does]. Not a very attractive target to sue, no big pile of cash just sitting there. There is much to be learned from the absolute worst scoundrels of the oil and gas industry about how to protect yourself.
I have mineral rights in Billings County, Township 141 North, Range 99 West, Section 9 SW1/4. The mineral rights were originall owned by my great aunt and then passed down to my mother who I inherited them from. They are currently being leased by Cody Oil. I have been told by attorneys in North Dakota that no royalties will be paid until my mother's mineral rights are probated in North Dakota. The attorneys want a minimum of $1500 to do this. They have asked me if I have a deed which I do not have. Should I contact a title company to try to get a deed? Should I pay an attorney to have the mineral rights probated?
Mary, was there probates for your aunt and mother's estate? You need to establish a chain of title through probates, or the intestacy laws (when there is no will). If you have to probate aunt's estate and mom's estate, it would probably be better to initiate a quiet title action than 2 probates, cheaper too. Before you probate mom's estate, make sure your aunts estate will not keep you out of pat status. The end result of a successful probate or quiet title action is that you could create your own deed in your name, and record it. If you hire an attorney, make sure they follow through to the deed recorded in your name.
A title company could not just make you a deed if you don't have something to show the minerals did indeed pass to you, the blessing of a court is the usual standard.
If you have the blessing of a court, I could write you a deed on a napkin which you could record. I would be careful to leave 1 1/4 inches in the left margin and 3.5 inches at the bottom for the recorders seal so you would not have to purchase an extra page for the bar code and recorders seal. The recorders are not picky and do not judge. Not just trying to be funny here, it's true.
Operator sometimes pay on an affidavit of death and heirship in ND, usually when the dollar amount in question is very small. If the royalty is a substantial amount, they are going to require a probate, because they can, because it's not their money being spent and because they get to use your money until you do perform a probate/ quiet title action to get into pay status. Mary, I hope this helps. Have a great day.
Thank you so very much for your response. I think I need to take this matter in steps and start from the beginning. My great aunt owned the mineral rights and she died in 1979 in Minneapolis. She did not have a will and her estate was not probated in Minnesota so I assume it was probated in North Dakota. I don't know how the mineral rights got divided up but I would like to find out because i don't think they were divided the way they should have been. Do I need to have an attorney in North Dakota check into this for me? What is a quiet title action? Thank you again. I really appreciate your help.
RW,
IF what you say is true about leasing, why would anyone ever sign a lease? All of these people have to be signing a lease for a reason, other than up front money for potential oil sales? I don't think there is much speculation anymore about finding oil when you drill a well, as the success rate for good companies is over 99%, right? So the trick is to get the right drilling company on your land I assume (continental/whiting seem to always have the best production rates)? How can you do that without leasing to them?
Mr. Fisher, if nobody leased, they would not drill wells. Did you read the law NDCC 38-08-08? If you did that would make you one in a thousand mineral owners who have. If you read it a couple of times so you were certain you understood it, you would be one in 10.000.
If the knowledge I am trying to impart were common knowledge, the oil companies would have got that law changed [ they did so in Montana in 2011]. It's not worth the effort now because very few know and the cream of the crop is already leased and drilled or soon will be. More people are learning every day, but it's too late for most.
Operators, when they first start leasing don't know that someone is going to go non-consent. They have millions of dollars in bonus and legal fees tied up in a spacing before they find out you won't lease. I hear 85% of leases are signed without negotiation as soon as they are received, some are negotiated for really negligible more money or royalty but I would say they get leases on 95%, a large portion operators don't get leases on are leased by non operators who participate.
Now then, do they write off the millions already invested, and the tens of millions still to be made, just because they won't be making 1 million, 2 million or 5 million off your acres? Would you give up 20 to 30 million after investing 2 million in a snit because you are only going to make 20 to 30 million dollars? Would you really?
An operator can carry 100 acres in a 1280 to make their profit on 1,180 acres, they won't like it but they will do it. I doubt they would carry 640 and make 2,560,000 off of half a 1280 spacing and 15 to 50 million of the other 640 acres. How good the area was would play a part in their decision. I myself am non-consent in some spacings, my operator sends me another lease offer with each new AFE well proposal. There is absolutely no chance that I will lease but I guess they have to try.
The reason everybody isn't doing it is because they had no idea that they could. Tell me, when was the first time you looked into it? Who knew? Certainly not me in the beginning! I had a lawyer working on my fathers probate mention that leasing may not be the best you can do. That's it, that's all I had to go on. I went on from there searching until I found the law on forced pooling, which I read several times. It tells you exactly what the operator is entitled to, his money back plus 50% of what he had to spend. It does not say the rest is yours but if it doesn't belong to the operator, who does it belong to? Nobody but the mineral owners.
There are some people who are leased who will tell you it can't be done, that there is a 200% to 300% penalty and you won't see a dime until the well pays out and recovers the penalty. Funny, I have the check right in front of me and have been collecting them from first production.
I figure some of these leased people bought into horror stories told by landmen. I think some of them do know the truth now. I know one person who is vehemently against being non-consent. This person bullied their family into letting them handle negotiation on 5 sections, negotiated a whopping 15% royalty and $100 bonus. Did not get a pugh clause, and they may have finally got another well but they had five sections tied up by one well for years. They also can't admit, even to themselves that they did that to themselves but to their entire family. If you succeed, it's a slap in their face, so YOU MUST LEASE, and take less just like they did. If you succeed, it draws attention to how they failed, themselves and their family. The family knows too, this person has mentiond that it makes family reunions awkward.
I wish people would just consider for a moment that I, someone who is not trying to make money off you might be telling the truth and do a little research.
People seem ready to accept someones word who is trying to make money off you. Of course they would not lie to you for financial gain, of course not. It's not like there is alot of money at stake, is there? Oh, wait, there is alot of money at stake.
They are not my brother-in-law and they and my sister will not have to move in with me if they don't make a killing. That being the case I would rather keep the greater part of the money for my oil myself. My kids might like a bigscreen TV and a convertible and attend a good college, Just like the oil guys kids. The president of EOG says that with $100 oil they make $60 a barrel, that's after well cost and paying the mineral owner their share. You can actually make more than that because you don't have to pay anyone a royalty.
I feel for the people who may have been fed a line of BS and innacurate statements [lies] horror stories about refracking gas wells in Oklahoma that just do not apply to XXL long lateral OIL wells in ND. The number of XXL long lateral oil wells that I heard have been refracked in ND can be counted on one hand and believe me I looked hard. Marathon did the refracking and it was on early wells completed with 1 frack stage. Yes that's right, one frack stage. If they had been completed with 10 or more frack stages the refrack probably would not have happened, 18 or more frack stages it certainly would not because then it would be more economic to drill another well than to refrack an already depleted area. Less oil for more money. One of the wells that Marathon refracked did absolutely no more production, the other 3 had modest gains, I don't think they are in a hurry to do it again
Mary, the state of ND does not recognize probates from other states. If an out of state probate were done, you would still need to do one in ND, an ancillary probate.
Mary, I would make it my goal to find out from the Division Order Title people who work for the operator exactly what you must do to get into pay status. You may need a lawyer to write a letter which may cost $150 to $200 so they take you seriously and answer.
RW. Thank you for this keen insight. Would you venture an avg number of acres an operator controls before they would start? we are in an area of 'modest' fields in 142/99 and apcing is 1280
I did not read NDCC 38-08-08, but I will now. It seems I am not paying enough attention to the law...Information like this is why I read through these discussions on occation. So thank you for this information and I will talk to you soon RW.
FrackinAndy, I think it would take about 200 acres in a 1280 with modest projected production before the operator would give up on the rest of it. I have heard from people with a few acres in a marginal area that the operator never offered them a lease, just treated them as non-consent from the beginning. The operator does not have to offer you a lease, they do have to offer you a lease and participation, both of which you must turn down or let the offer lapse by doing nothing before the operator can petition for the imposition of the risk penalty.
Our family owns 240 min acres that is leased till the fall. Have not poked a hole in the ground yet, so we may have some options when the time comes.
My friend Buddy Cotten says that you attract drilling by leasing. Mr. Fisher had a good point, if nobody leased, they wouldn't drill wells.
That doesn't say you have to lease all of it. You could lease some, to attract drilling, participate in some and be non-consent in the rest. Any combination you and the operator can agree on, it's up to you, they can't force you to lease. I know someone that the operator annoyed and they participated for $100 worth. That $100 probably costs the operator thousands in paperwork alone.
Then too they probably have alot of money invested in that spacing already that they probably don't want to walk away from. Andy, if not all of your acres are in one spacing, I wouldn't even worry about having too much. The spacing I'm in operated by SM Energy, they probably have less than 60% interest, with the rest mostly being participants. They bdon't have to have all of it before they will drill a well.
I know it's not easy being firm with these people but it pays off. When the landman couldn't move me, they had the VP for land talk to me, I caught him in a blatant lie and talks ended until they asked me if I would speak to the CEO, which I agreed to under the one lie and you're out rule. He lasted two conversations. He also asked me how close I was to Dallas Tx I was. I think the idea was to wine and dine me, among other things. They were offering me 30 times their first offer for bonus. I was really considering accepting, then the lie came, he told me that I would be facing a 200% to 300% penalty, he blew the mission right there. My reply was thank you and goodbye. By law the penalty is only 50% for the mineral owner.
Alot of fuss for 1.19% each of 4 wells in that spacing, although it's a good producing spacing.
Don't worry about having too much acreage, you can negotiate almost anything in oil and gas and nowhere is it written in stone that you have to give it all up. I would also expect the kind of deal that passes between oil companies when they assign leases for any acres you lease, maybe $5,000 per acre and 23% royalty. The dollar figure is my estimate and/or starting point, but the 23% is customary between companies in the Bakken for average areas, in great areas they don't assign, they participate unless they are just swapping acreage of equal value to keep things tidy. There are always options, if you aren't leased. If you are leased, there are only two options, keep it or sell it. I like having more options.
RW - I appreciate it so much that you take time to answer our questions. All of this is very confusing to me. What is a quiet title action? When you say the "operator" do you mean the oil company? Do the Division Order Title people work for the oil company? Cody Oil is currently leasing my mineral rights. Should I ask the oil company people what they would need from me in order to pay out my royalty? They have not drilled yet but I want to be ready when they do. Thanks.
Mary, a quiet title action is when a court looks at all the facts and determines who the owner or owners are. It can take the place of doing several separate probates. When the judge rules who owns what, you have good marketable title right then and if nobody challenges withing 2 years, you can perfect your title so it's like nobody ever owned your property before. After perfecting title, even someone showing up with a better claim than yours was would be out of luck because your title can no longer be challenged.
Yes, the operator is the oil company and the division order title people work for them.
Yes Mary, you need to ask the operator/oil company what is needed to get you into pay status. No sense spending money until you are certain it will be the right thing or enough.
If you have the best claim, quiet title should result in marketable title and a mineral deed in your name that you can record. That is the gold standard. As above, if you then perfected your title 2 years after the court judges that you are the rightful owner, that would be the titanium standard. I quiet title action is generally cheaper than 2 probates and in my opinion gives a better result.
Lastly, Mary it is great that you are being proactive, but many operators don't spend money on the detailed title until they have oil coming out of the ground. If there is no oil yet, they may not have made an in depth examination of title and they may not be able to tell you what you need to satisfy them, at this point.
Before they actually start producing oil, they are working off of what they call "buy title" which means it's good enough to lease you but might not be good enough to pay you royalty. Companies have been known to lease the same mineral acres from two different parties when they aren't certain who owns it, it's called "protective leasing" because they don't want to not lease the right person and wind up giving an unleased person part of the well for free.