I'm in need of some GV Intel for Baker Family rights in Hoot Owl!

North Dakota Mineral Rights Golden Valley County, ND
1

Ok, so my family here in AZ have inherited mineral rights in various spots though out ND/MT. The most action to date comes at T141N R105W Sec. 10 E. 1/2 25 net acres.

Initially we were approached by Petro-Hunt in 2008 for a lease for our rights for the amount of $10.00 per acre ($1250.00) with 15% royalties. We agreed. The lease is set to expire next month.

Three weeks ago, we were contacted by Petro-Hunt to renew the lease. They lowballed us the same deal they offered in 2008. Of course we rejected the offer due to the number of producing wells in the area, our subscription to dmr.nd.gov/oilgas/ for our own education and not to mention Shall 22-15H extending from Section 15 from the south into Section 10 (East 1/2, 25 acres net, ours).

Thinking that we might have an ace up our sleeve, we called Petro-Hunt back after a few days reseaching and got the representative's voicemail. One more call for a counter offer days later resulted in us getting the voicemail once again. To me, this is buisiness to the Fecal degree! But probably for a strategic reason.

So today as I was browsing the latest info on dmr.nd.gov/oilgas/, I looked up the status of Schaal 22-15H and found that it is now listed as "Temporarily Abandoned" due to "No Oil Production". According to the well file, this decision was made back in NOV/DEC of last year.

So now I'm assuming that they are protecting their investment by renewing the lease because of the "Temporary Abandon" designation and the amount of money they have poured into this well without results.

So here are my questions to you who might be in the area that can give me some REAL intel.

1. I have heard that bonuses in the area are going for around $450-$350 an acre with a royalty of 21%-no less than 18.75%.

Can anyone in this area with rights confirm this? To the North, Stecker 23-3 and to the Northeast, Ross 13-2 seem to be producing ok numbers, along with Stecker32-9 to the east doing good as well.

2. According to to the Well Files, the surface owner at the well site are owned by an Ella Schaal.

Does anyone here also own/know, who has Mineral Rights to this Sec. 10, or can direct me to someone that does, get us on the right negotiating track?

I know that many people suggest finding a oil/gas lawyer. I do not have the time nor the money to invest in one at this time.

To anyone up there, these rights belonged to my Great Grandfather Earl W. Baker, then to his daughters Ila M. and Frances E. Baker, according to my father Earl R. Knowles, owned quite a bit of land in the area.

Anyone with info on this area as far as mineral/surface owners and can direct me to a real person instead of a stupid electronic voice that tells me to press 0 for English, would be greatly appreciated!

Thank you,

Aaron R. Knowles

2

Looks like they have production from the Deadwood and Red River close by.

I would be very careful before I assumed that your lease is going to expire. The well did produce 11 mcf of gas and is shut in. What does your lease say about gas wells that are shut in for lack of a market or a way [infrastructure] to get the product to market? I hope you don't get that whopping check for $1 per acre per year shut in payment.

I have seen continuing operations clauses that would hold a lease as long as 1 year did not elapse between the abandonement of work on one well and the preparations begun for the drilling of another well. How long is the grace period in your lease?

I just don't want you to be caught by surprise, your lease may not be ending yet.

3

RW, I see what you're saying about the the amount produced in October or '12.

Is this what you are talking about?

2534-Scan7.jpeg (42 KB) 2535-Scan11.jpeg (16.7 KB)
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Aaron, Mr. Kennedy is correct. Because the Schaal horizontal well went through your minerals you should carefully re-read your existing lease. Although Schaal 22-15H is an apparent dry hole, there may be about a half dozen items within the clauses allowing them to extend that lease beyond the primary term (some for X additional days, some for X additional years, such as the shut in clause). So go over it again looking for anything which might extend it. However, since your Lessee approached you to renew the lease, your minerals may be open soon and you're doing the right thing with this homework. Though I'd determine if they're actually open before making more phone calls. I'd also plan on contacting additional potential Lessees.

To answer your questions; I've looked at numerous leases across 141-104 & 141-105. Leases within the past year have shown royalty rates at 1/6th, 17%, 18%, or 3/16th. There are a couple at 20%, though only a couple near the better wells (in 141-104). Someone may have received above 20%, but I didn't see any. Most actually signed to less than 3/16th, but that should be your minimum.

It's hard to know the true market on bonus amounts. They are not shown in the leases. I was told by some who leased this past year, some minerals went for $600 (again close to the better wells), and others at $175. Though your bonus amounts are probably closer to the market on your tract. The nearby producing wells help your cause, yet the Schaal results will hold them down somewhat. Others have posted rumor of significantly higher amounts. While anything is possible those numbers seem very doubtful.

The pending state sale (Aug 6th) will provide some actual guidance. This lease includes some near you (sections 4 & 16), and more in adjacent townships. This sale may indicate how high or low the market currently is. Aaron, answers are often hard to come by. Hope this info helps get you started.

5

Yes, that's it. They don't even have to pay you the shut in royalty until you ask for it because they can never lose the lease as long as they pay it eventually. Their maximum liability is paying you the $1 per acre per year.

I would be worried about this because they may not be getting back to you because they have found another way, other than leasing you again to hold the lease. If you titptoe through the wellfiles you will find where the well produced 11 mcf then was shut in. Your lease does not provide any penalty for non-payment of shut in royalty other than that they owe you the shut in royalty. I think you need a release before you could lease to someone else, for your own protection because it's arguable that your lease will not terminate. Just be cautious.

Aaron Knowles said:

RW, I see what you're saying about the the amount produced in October or '12.

Is this what you are talking about?

6

Eastern MT, thank you for the info. those numbers are what we were going to hit them with if they call back. Hopefully they don't use the shut in clause on this.

rw kennedy, I looked through the file and did see the 11 MCF that was produced back in Oct '12. I'm going to have to rally the family and examine our options if thats the case.

This sure has been a leaning experience, More like crash coarse! Thanks for the info guys and keep it coming if you have anymore good ideas or advice.

Afte looking at this lease it seems it does have the $1 per acre shut in clause. Question is are they going to use it? They have approached us to renew but then again they have not returned our calls as yet. Going to wait this out for a bit and see what happens I guess.

Geez! Maybe a lawyer would be a good idea to look this over.

7

Eastern MT, The lease is set to expire on Aug. 29th. However when you said "Though I'd determine if they're actually open before making more phone calls." how does one find that info?

8

Aaron, that is determined by the terms within your existing lease. That is why re-reading the entire lease is important. The shut-in clause you cited is one example, though perhaps not the only one. Some leases also allow the Lessee to essentially add an additional year ("365 days") on the end. Other leases have open ended language describing "continuing operations". This may enable a lease to be extend beyond the primary term with minimal activity on their part. As a result I'd encourage you to re-read the lease with an eye for anything of this nature which MIGHT extend you beyond August 29.

Regarding the shut-in, I'm not an attorney but I doubt they have a case for that. The well only produced six days in October 2012. Producing a grand total of 11 Mcf over that span does not demonstrate a "well capable of producing". So although possible, I doubt they'll try to claim it as a gas shut-in. If you sign a new lease be sure to strike that part of the last line, so failure to pay a shut-in royalty does terminate the lease.

At this point I suggest the following approach; Know your existing lease as well as possible. Don't worry about calling anyone. Look to see the results of the Aug. 6th State Lease auction for bonus amounts. Read all the leasing resources you can find (such as above links "Mineral Help" and "Blogs"). Then start making a list of items you want changed, or added to, in a future lease. If the current Lessee leases you again they'll want to just use the existing language as is. That may not be what you want. The next month will pass quickly. In the meantime, get as prepared as you can to handle all the terms not just bonus and royalty. Good Luck.

9

With true respect Eastern MT, if the operator claimed that the well is held as shut in and as Aaron says he does not have the time or money for an oil and gas lawyer, what will be the effect if the operator claims the well is shut in due to infrastructure or lack of a market? For 125 acres that they have a wellbore through? I believe the operator might try it, especially as I am not certain that horizontal well is dead. The operator only produced 2,028 barrels of water, I don't think they got all their frack water back yet. If one looks, you can find other wells that have been temporary abandoned at least as far back as 2009 in ND.

My main point is the operator can claim absolutely anything and if you don't have the cash and will to sue them, there is not a darn thing you can do about it. Aaron has already said he doesn't have the time and money to get an oil and gas lawyer right now for a lease negotiation, I doubt he would find the money and inclination to find a lawyer for a $20k to $50k lawsuit. Believe me, you can tell who you want that something wrong is happening and they will tell you it's between you and the lessee you contracted with and you need to work it out with them or sue them. So all the operator has to do is say the well is shut in, and send the $1 per year. Knowing something is wrong and proving it in a court of law after spending tens of thousands of dollars in legal fees are two different things.

10

Mr. Kennedy you are correct that remains a possibility. This is one reason I suggest Aaron not make any phone calls until the expiration date has passed. You don't want to prompt them to play that card. Nor should Aaron do anything which may imply acceptance of this (such as cashing their tiny check if one is sent). Though my best guess is that they won't call this well a gas shut-in.

Whiting has a dozen plus producing wells in this Big Island play. Each produces more gas per day than this well produced in total. All of that gas has been flared and there is no indication of any future attempt to capture it even though Whiting has a gas plant about 50 miles down the road. That might be deemed simply a lack of infrastructure though it indicates even more the Schall well is incapable of production in paying quantities. So while the 'shut-in card' could be played, they also know their hand is mighty weak.

A lawsuit is a losing proposition for all involved. Aaron doesn't want one, though he shouldn't tell them that. It would also be cheaper for Petro-Hunt to avoid one by paying to lease the minerals again. I'd suggest Aaron prepare to lease again, then if the shut-in is not invoked he'll be in a position to act. Either way this will shake out by the end of August and they'll know where they stand.

11

Well I'm gonna wait til the expiration date comes and see if they try and make contact again. In the meantime, I will be brushing up on my lease skills in hope that if and when they come back to me, I will at least have the knowledge to change things up a bit to my advantage.

I really do appreciate the info guys!

12

Well, Petro-Hunt came back with a counter offer to which my Aunt foolishly accepted at the drop of a hat! $100 per acre, 16.50% for 5 years! My aunt is the mineral holder on this plot so she has the say but we had a nice long conversation before hand about counter offers. Apparently she was quick to accept the offer because I told her that they had "Shut in" the well.

So much for that!

Thank you all for the invaluable information and advice! It is well appretiated but too bad it was all for naught.

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For what it is worth, your aunt's decision is not uncommon. The typical mineral owner deals with this type of situation only a few times during their lifetime. On the other side the oil company deals with it every day. So it is no surprise who usually makes the better deal.

14

Yea MT, but I thought I had her all lined out for this. She just crumpled and forgot about everything I told her needed to be done to get a fair lease. Probably could have came out much better if she would have stuck to her guns. Oh well!

Won't happen next lease coming due. My immediate family owns this one.

15

Who knows, Aaron. There is the possibility that your aunt has the better of all of us and is $100 per acre richer. I doubt it but it's possible. 16.5% royalty is not great in ND, you can usually get that much from not signing a lease from the weighted average of what everyone else in the spacing leased for when you are force pooled, with a chance of actually owning part of the well eventually and receiving 100% less cost of production. As for signing a lease on the basis of a well being shut in, which pretty much guarantees that you won't be getting royalty? It sounds against the flow. I hope they at least send her the bonus check or even bother to pay the dollar per year shut in royalty when the lease expires.

Aaron Knowles said:

Well, Petro-Hunt came back with a counter offer to which my Aunt foolishly accepted at the drop of a hat! $100 per acre, 16.50% for 5 years! My aunt is the mineral holder on this plot so she has the say but we had a nice long conversation before hand about counter offers. Apparently she was quick to accept the offer because I told her that they had "Shut in" the well.

So much for that!

Thank you all for the invaluable information and advice! It is well appretiated but too bad it was all for naught.

16

RW at least we get something. It gets split among the family. See what happens.