I have property in the Bakken near Williston (Sect. 7). The property is co owned with about a dozen relatives many of whom don't want to lease. My question is if you are "forced pooled" what are the terms under which you will be "pooled"? Will you have the same terms as others in the area that have signed a lease? Is it disadvantages to be forced pooled rather than to sign a lease?
When you are forced pooled you will recieve the average RI within the DU. Once you get to payoff on the well then you will recieve your percentage on minerals within the DU. There are many other risks of going down hole as well.
Matt; Thank you for your answer. Could you describe a few of the other risks of going “down hole”. I am very new to this and am unfamiliar with the term “down hole” as well.
Mat Ekblad said:
When you are forced pooled you will recieve the average RI within the DU. Once you get to payoff on the well then you will recieve your percentage on minerals within the DU. There are many other risks of going down hole as well.
I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can’t collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest in a $9,426,000 well. My part comes to $56,088 +50%penalty [ $28,000 ] since I will be carried, total $84,000. Sounds like alot, doesn’t it ? I’d say yes …except they forced me into it. I’m not responsible for those costs. They can only recover from my oil. If they never recover the cost of the well, I will content myself with the royalty they had to pay me during operations from the first barrel. If the well is even moderately productive, they will recover the cost/penalty eventually. The main thing is they are only going to make $28,000 [ the penalty ] off my oil. They wouldn’t drill a $9.4 million dollar well if the payoff was only $13.9 million. I think it’s easy to assume that they expect the oil to be worth at least tripple that amount. By going down the hole you get what the oil company would have gotten off your oil. They don’t make squat and they don’t like that. How do you think the oil company got rich enough to afford $9 million dollar wells ? They did it off of other peoples oil. It is your oil, you know? When you sign a lease you are saying you will pay them 80% plus to retrieve and sell your oil for you. If carried you pay possibly 83% of your oil till your percentage/penalty is paid for, then you pay THEM nothing. From that point you are paying your production costs, the same as they are paying. Not a massive risk difference between 80% and 83%. I think the big risk is that you might have to decide what to do with alot more money if/when you reach 100% royalty less only the cost of production. I invite professionals in the oil business to pick what I have said apart, but I don’t think there will be many takers. They talk of risks, but did you notice they never give an example? The risk that the well might be a dry hole ? A lease won’t save you from that. 20% of nothing is still NOTHING. Good luck, Rodger. Rwk
Roger D. Spears said:
Matt; Thank you for your answer. Could you describe a few of the other risks of going "down hole". I am very new to this and am unfamiliar with the term "down hole" as well.
Mat Ekblad said:When you are forced pooled you will recieve the average RI within the DU. Once you get to payoff on the well then you will recieve your percentage on minerals within the DU. There are many other risks of going down hole as well.
If everybody decided to ride down the operator, no wells would ever be drilled. Your interest is so small, they can carry you. If your interest were 20%, the well would not get drilled with that level of carry.
I much prefer to partner with industry in the form of some sort of exploration agreement. As to making money off of your oil, it is certainly that. Up to now, it appears that you have not done anything to exploit your asset. Only the risk taker has. You could certainly pay for a contract operator to come do what they are doing, but they have the knowledge, ability and expertise. In a normal oil and gas world (apparently not what exists in some of the resource plays as has been related by some of the members of this forum), the landowner contributes land and the oil company manages risk and furnishes all of the money and assumes all of the risk.
There is no attempt on my part to "pick apart" what you have written. Just some ideas for you to consider.
BTW, make doggone sure that in the AFE, you are named as an additional insured on the Certificate of Insurance. Failure to do so, in the event of an environmental catastrophe or accidental death could easily cripple you financially. But in order to get the insurance, you have to pay your way. Gets dicey. Can't run down to State Farm and get that type of insurance, either. Now you are really taking risk without insurance.
r w kennedy said:
I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can't collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest i
Actually Kodiak didn’t provide me any such certificate. Were they supposed to ? Perhaps you could explain how I/someone could be held liable for something I was forced into ? Or is that only for those who pay their way up front?
Buddy Cotten said:
If everybody decided to ride down the operator, no wells would ever be drilled. Your interest is so small, they can carry you. If your interest were 20%, the well would not get drilled with that level of carry.
I much prefer to partner with industry in the form of some sort of exploration agreement.
BTW, make doggone sure that in the AFE, you are named as an additional insured on the Certificate of Insurance. Failure to do so, in the event of an environmental catastrophe or accidental death could easily cripple you financially. But in order to get the insurance, you have to pay your way. Gets dicey.
Best,
Buddy Cotten
r w kennedy said:I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can't collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest i
How do you become liable? Let's say the well has reached 150% payout and you are a co-owner of the well. And something happened...something bad....and five cows and a two cowboys were killed. Then the pipeline ruptured and blew up a school bus.
All the heirs will sue the operator of the well and all of the partners/co-owners. Seen it happen. Also named will be the mineral owners. Also named will be the surface owner. Everybody either better be well protected by insurance or an air tight hold harmless clause.
If you feel that an oil and gas lease is set up in favor of the lessee, wait to you see the JOA that the operator will drop on you. And the COPAS form and the Gas Balancing Provision. If I wanted to rape a rookie, that is how I would do it.
They may tell you to take your oil and gas in kind. They may be under no obligation to market your product for you. In states other than my home state, I do not know.
As to Kodiak providing a Certificate of Insurance for you, did you agree to pay your way? They are not going to name you as an insured without being reimbursed. And, if I were Kodiak, I would not let you have your cake and eat it too. You want insurance, go buy some. I will give you the name of our underwriter. And, they expect their money up front -- if they choose to cover you. Your only other form of protection is to get the minerals out of your name and put them into something that gives you a corporate cloak of protection. All you can lose then is all the production in the well.
Good luck on your oil and gas venture.
r w kennedy said:
Actually Kodiak didn't provide me any such certificate. Were they supposed to ? Perhaps you could explain how I/someone could be held liable for something I was forced into ? Or is that only for those who pay their way up front?
Buddy Cotten said:If everybody decided to ride down the operator, no wells would ever be drilled. Your interest is so small, they can carry you. If your interest were 20%, the well would not get drilled with that level of carry.
I much prefer to partner with industry in the form of some sort of exploration agreement.
BTW, make doggone sure that in the AFE, you are named as an additional insured on the Certificate of Insurance. Failure to do so, in the event of an environmental catastrophe or accidental death could easily cripple you financially. But in order to get the insurance, you have to pay your way. Gets dicey.
Best,
Buddy Cotten
r w kennedy said:I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can't collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest i
Sounds like good sound advice as always, Buddy. I think I’d be looking hard for insurance as soon as I thought I was even close to not being carried anymore. My brother has always been in favor of an LLC for our interests. As for taking advantage of a newbie; I never at any point thought I’d be able to do this without professional help. I’ve talked with Kodiak for weeks. I think we could have come to a lease agreement, Kodiak and I, but they wasted so much time trying to maintain that they had a valid lease, and trying to beat the price down to almost nothing [ $200 per acre and 18% ] after they finally admitted they probably don’t have a valid lease. I talked to the CEO of Kodiak. I asked him to release the recorded leases voluntarily, because they know they did not pay the signing bonus and it would be the ethical thing to do. With so little time left I don’t see alot of options. Thank you again for the advice. RWK
Buddy Cotten said:
How do you become liable? Let's say the well has reached 150% payout and you are a co-owner of the well. And something happened...something bad....and five cows and a two cowboys were killed. Then the pipeline ruptured and blew up a school bus.
All the heirs will sue the operator of the well and all of the partners/co-owners. Seen it happen. Also named will be the mineral owners. Also named will be the surface owner. Everybody either better be well protected by insurance or an air tight hold harmless clause.
If you feel that an oil and gas lease is set up in favor of the lessee, wait to you see the JOA that the operator will drop on you. And the COPAS form and the Gas Balancing Provision. If I wanted to rape a rookie, that is how I would do it.
They may tell you to take your oil and gas in kind. They may be under no obligation to market your product for you. In states other than my home state, I do not know.
As to Kodiak providing a Certificate of Insurance for you, did you agree to pay your way? They are not going to name you as an insured without being reimbursed. And, if I were Kodiak, I would not let you have your cake and eat it too. You want insurance, go buy some. I will give you the name of our underwriter. And, they expect their money up front -- if they choose to cover you. Your only other form of protection is to get the minerals out of your name and put them into something that gives you a corporate cloak of protection. All you can lose then is all the production in the well.
Good luck on your oil and gas venture.
Buddy Cotten
r w kennedy said:
Actually Kodiak didn't provide me any such certificate. Were they supposed to ? Perhaps you could explain how I/someone could be held liable for something I was forced into ? Or is that only for those who pay their way up front?
Buddy Cotten said:If everybody decided to ride down the operator, no wells would ever be drilled. Your interest is so small, they can carry you. If your interest were 20%, the well would not get drilled with that level of carry.
I much prefer to partner with industry in the form of some sort of exploration agreement.
BTW, make doggone sure that in the AFE, you are named as an additional insured on the Certificate of Insurance. Failure to do so, in the event of an environmental catastrophe or accidental death could easily cripple you financially. But in order to get the insurance, you have to pay your way. Gets dicey.
Best,
Buddy Cotten
r w kennedy said:I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can't collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest i
Mr. Cotten:
Your opinion doesn't take into consideration the Commission's current spacing unit practices in North Dakota. If the spacing units were the proper size, then maybe your comments would have merit. But when spacing units are oversized, the dynamics change. The operating companies are misusing the law with respect to well spacing and forced pooling to tie up as many acres as possible "by production" and, as a result, mineral owners' royalty interests are substantially diluted.
Your appeal to fear is an invalid argument. Please provide citation to authority (statutory and case law) that holds an unleased mineral owner vicariously liable for an operating company's negligence or intentional torts.
Buddy Cotten said:
If everybody decided to ride down the operator, no wells would ever be drilled. Your interest is so small, they can carry you. If your interest were 20%, the well would not get drilled with that level of carry.
I much prefer to partner with industry in the form of some sort of exploration agreement. As to making money off of your oil, it is certainly that. Up to now, it appears that you have not done anything to exploit your asset. Only the risk taker has. You could certainly pay for a contract operator to come do what they are doing, but they have the knowledge, ability and expertise. In a normal oil and gas world (apparently not what exists in some of the resource plays as has been related by some of the members of this forum), the landowner contributes land and the oil company manages risk and furnishes all of the money and assumes all of the risk.
There is no attempt on my part to "pick apart" what you have written. Just some ideas for you to consider.
BTW, make doggone sure that in the AFE, you are named as an additional insured on the Certificate of Insurance. Failure to do so, in the event of an environmental catastrophe or accidental death could easily cripple you financially. But in order to get the insurance, you have to pay your way. Gets dicey. Can't run down to State Farm and get that type of insurance, either. Now you are really taking risk without insurance.
Best,
Buddy Cotten
r w kennedy said:I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can't collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest i
Mr. Cotton, You have scared me. I am the owner of just the MR’s on a section in Dunn Co. North Dakota. They are leased to a Leasing Co. in behalf of a drilling company. If the driller decides to drill and an accident happens in which someone were killed, do you mean I can also me named in the suit by whomever decides to sue the driller?
r w kennedy said:
Actually Kodiak didn't provide me any such certificate. Were they supposed to ? Perhaps you could explain how I/someone could be held liable for something I was forced into ? Or is that only for those who pay their way up front?
Buddy Cotten said:If everybody decided to ride down the operator, no wells would ever be drilled. Your interest is so small, they can carry you. If your interest were 20%, the well would not get drilled with that level of carry.
I much prefer to partner with industry in the form of some sort of exploration agreement.
BTW, make doggone sure that in the AFE, you are named as an additional insured on the Certificate of Insurance. Failure to do so, in the event of an environmental catastrophe or accidental death could easily cripple you financially. But in order to get the insurance, you have to pay your way. Gets dicey.
Best,
Buddy Cotten
r w kennedy said:I and my brother will be going down the hole, so to speak. Forced pooling means they are going ahead without your consent. They have to offer participation, or they can't collect a 50% penalty, charged to the production on your well interest. I have a 0 . 595 interest i
Dear Ms. DG,
I cannot provide a citation to something that I could not find -- I find no statutory exemption from liability in North Dakota's forced pooling statute. Perhaps you could edify me on that.
As to common law tort, if you have an interest in a well -- a possessory interest, such as a working interest or co-tenant, you can and will be named as a defendent. Whether you can be successfully sued, that is a matter for the courts - but if you do not defend yourself, you WILL have a declaratory judgement leveled against you.
I notice by your previous posts that you are in favor of riding down the operator. I will not disagree that in MOST cases, it is to your benefit in the resource plays. My earlier comment stands -- if the "non-consenting" interests are great enough, the operator cannot accept the penalty and commit to the operation as a matter of functional economics. They will move to the next drillsite that survives economic scrutiny.
DG said:
Mr. Cotten:
Your appeal to fear is an invalid argument. Please provide citation to authority (statutory and case law) that holds an unleased mineral owner vicariously liable for an operating company's negligence or intentional torts.
Dear Ms. Rainey,
You will likely be named. Fortunately, the Operator carries lots of insurance and when that is exhausted (almost never), the mineral owners and the Operator's assets could be attached. That is why in my lease forms, I have extended protection language.
Since you are leased, I would not lose any sleep over it.
Sharon Rainey said:
Mr. Cotton, You have scared me. I am the owner of just the MR's on a section in Dunn Co. North Dakota. They are leased to a Leasing Co. in behalf of a drilling company. If the driller decides to drill and an accident happens in which someone were killed, do you mean I can also me named in the suit by whomever decides to sue the driller?
Mr. Cotton: Before there can be a exception to liability, there has to be a basis for the liability in the first place. Holding someone liable for someone else’s negligence or intentional torts is called vicarious liability. In order for vicarious liability to exist, there must be a basis in law. Show me one case in the entire United States where a mere mineral interest owner (leased or unleased) has been held vicariously liable for an operating company’s negligence or intentional torts. Your scare tactics are becoming reprehensible…
Buddy Cotten said:
Dear Ms. DG,
I cannot provide a citation to something that I could not find -- I find no statutory exemption from liability in North Dakota's forced pooling statute. Perhaps you could edify me on that.
As to common law tort, if you have an interest in a well -- a possessory interest, such as a working interest or co-tenant, you can and will be named as a defendent. Whether you can be successfully sued, that is a matter for the courts - but if you do not defend yourself, you WILL have a declaratory judgement leveled against you.
I notice by your previous posts that you are in favor of riding down the operator. I will not disagree that in MOST cases, it is to your benefit in the resource plays. My earlier comment stands -- if the "non-consenting" interests are great enough, the operator cannot accept the penalty and commit to the operation as a matter of functional economics. They will move to the next drillsite that survives economic scrutiny.
Best,
Buddy Cotten
DG said:
Mr. Cotten:
Your appeal to fear is an invalid argument. Please provide citation to authority (statutory and case law) that holds an unleased mineral owner vicariously liable for an operating company's negligence or intentional torts.
Dear Ms. DG,
Reprehensible? You misjudge me.
No intention was made to use scare tactics. What possible reason would I have to do so? I have no business in North Dakota, other than being a working interest owner in some non-horizontal wells. I am not buying leases or representing any landowners in ND, and will not in the future. North Dakota is not the basis of my business.
As to any case in the United States, I do not have the citation, (and I am not going to drive to Newton County to get it) but C. T. Bledsoe (mineral owner) was named in a tort suit in Newton County, Texas concerning an accidental death during the drilling of the Dominion Exploration and Production - Bledsoe No. 1 Well, when a service company employee touched a live wire and was electrocuted. The case was settled out of court.
I am, however, not strictly talking about a mineral interest owner, specifically. I am talking about a co-owner of a well, which is exactly what you are if you are force pooled and the operator has recovered your interest and penalty. If you are a co-owner, you share in risks and rewards. That is not vicariously liability. It is actual liability, since you have a possessory interest in the well and its production.
I care not if you support exploration or not. If you get forced, I truly wish you all the best. I hope that you make lots of money and all wells (not just any you are in) are drilled safely and without incident.
I have neither the time nor inclination to carry this further. Feel free to believe what you will. I post to help educate and that is my only intention.
DG said:
Mr. Cotton: Before there can be a exception to liability, there has to be a basis for the liability in the first place. Holding someone liable for someone else's negligence or intentional torts is called vicarious liability. In order for vicarious liability to exist, there must be a basis in law. Show me one case in the entire United States where a mere mineral interest owner (leased or unleased) has been held vicariously liable for an operating company's negligence or intentional torts. Your scare tactics are becoming reprehensible....
Mr Cotton: Thank you for your information and answering my original question concerning the disadvantages of being “force pooled”. You have been most helpful. I am convinced that being force pooled is not a good option for me.
Buddy, I’m not looking for a free ride, and never said I was. If they carry my interest, my share will be paid in OIL. I agree that some form of partnership may be the best solution. If you will recall I did execute 2 leases which they recorded and never gave the agreed consideration. I believe this could call into question whether they made a good faith offer to lease. Where in that situation does my fault lie ? I did my part. When I executed the second lease for the same minerals, giving them a second chance to get it right; I think you could say I met them more than half way? Who does Kodiak have to blame for the lease not being valid? I don’t see how I could be made out to be the bad guy in this situation. Where does my fault lie ? RWK
If you are in N.D. you do not get nothing until the well is paid off, is not true. In N.D. the owner recieves a cost free royalty, determined by weighted average of what everyone in the pool leased for or 16% [ 1/6 is only 16.67% ] whichever the operator elects from barrel 1. The other 84% goes to pay for the well, expenses, and risk penalty. It may well take 5 years to reach 100% royalty but you will have a cost free royalty of the weighted average or 16% until then. The people trying to get you to sign a lease will say, you get nothing until the well and penalty is paid off. It simply isn’t true. Look it up for yourself. Why would someone trying to lease you say, you get nothing till the well is paid off? This is an oversimplification but, the oil co doesn’t have minerals of their own; they have to lease yours to make money. I don’t think the oil co’s will drill wells to recover a 50% penalty. They must get you to lease. States other than N.D. may allow up to 300% risk penalty. I’m glad my minerals are in N.D.
The first of the 4 wells I'm carried in in Dunn cty ND just IP'D at 2695 bbl in the first 24 hours. I can hardly wait to see what the other 3 wells I have interest in, in that spacing do.
what factors do you consider when deciding to go force pool or to lease?
What I consider to be the big one is if there is oil there. If there are poor wells or dry deep ones around you, I'd take the lease money and run. But if you get a poor well in ND it wouldn't really hurt to be carried, you will still get the 16% royalty until the well is paid for and the penalty retired, which may be never. If you get a poor well and it takes 10 years to pay out and retire the penalty you would need insurance as people have said, If you kept it beyond that point. If the well isn't paying enough to cover your expenses, you could sell your interest in it yet retain your mineral rights, as things may change in the future. I have heard people say that leasing protects you in case there is a poor or dry well. Unless the bonus is extravagant, a lease won't protect you against a dry well. I think most lease bonuses are less than 3% and most less than 1% of what the oil co expects to realize from your minerals. A big deciding factor is, do you need the money right now so bad that you will give up 80 to 84% of your future earnings for 1% right now? Carried in ND (other states are a different ballgame) you are risking 4% or less of your lease royalty, along with the bonus, against a potential to get 400% more (after expenses) for your oil. The difference between 16% cost free you will receive as carried and 20% for leasing (alot of people don't get 20% even), I think is unlikely to make a life changing difference if your holdings are small enough that they will force pool and carry you. In the end, if the situation doesn't look good to you for being carried, it's still a bargaining chip, because you know that whatever happens you will get paid 75% or more of what everyone else got for their oil. In ND you can negotiate to the bitter end. They can't cut you out. Good luck, whatever you do.
Andrew Babcock said:
what factors do you consider when deciding to go force pool or to lease?