Good morming all. I own 7.5 unleased mineral acres in a 640 spacing unit. Last April I recieved invitations to participate in the drilling of two wells. They also contained provisions to not participate or lease. In discusions with the landman I thought there lease offer was low. My counter offer was declined. I did nothing else.
The two wells have been drilled and are producing. The NDIC website shows 4 more wellsites to (hopefully) be drilled.
The Oil Company is long established in this field and still is operating wells in the Madison a couple of miles away. My thoughts on this is even with the 50% penelty and operating costs I will make more in the long run by getting force pooled than leasing.
Am I being naive about this?
I don't think you are being Naive. If I were you I would look into the productive capacity of your wells. There is the very good possibility that you have other productive zones. If you are in one of the better areas in the county, your acres could produce $100,000 per acre. Even if after well cost and penalty, if what you made as owner was only equal to a 33% royalty, there isn't anyone out there offering that kind of royalty, now is there? In my opinion, the operator saw something in your acres or you would have gotten 1 well to hold it and they would have moved on. Do some research, I'm glad to help if I can.
Thank you for your reply Mr. Kennedy. I was delayed responding by a couple more items relating to this.
Later that week I recieved a payment for for the code mandated royalty for 5 months of production for these two wells. It works out to a 1/16th. I believe the developing company owns 80% of the minerals in the section so they have pretty good control what the "weighted average" is. Makes the payoff and penalty go quicker, I hope.
The following week I recieved offers to participate for two more wells. This seems to be a positive trend. One question on these offers: If I "Elect not to participate in the..." does this start the force pool/non-concent process? Or is it something else?
The spacing unit is thirty four-152N-96W.
The check amount was enough to pay for the N.D. probate work with some left over.
Anyone on this site should be familar with the NDIC website. I have found the $50 basic fee adds even more information for specific wells.
r w kennedy said:
I don't think you are being Naive. If I were you I would look into the productive capacity of your wells. There is the very good possibility that you have other productive zones. If you are in one of the better areas in the county, your acres could produce $100,000 per acre. Even if after well cost and penalty, if what you made as owner was only equal to a 33% royalty, there isn't anyone out there offering that kind of royalty, now is there? In my opinion, the operator saw something in your acres or you would have gotten 1 well to hold it and they would have moved on. Do some research, I'm glad to help if I can.
Mr. Warren, if they paid you 1/16th they are in violation of state law,NDCC 38-08-08, not less than 1/8th is the legal minimum for non-consent. I hope you meant 16%.
Rule of thumb, I would want to see 50k barrels of oil production in the first 6 months per well in a 2 mile lateral, your wells cunulatively have produced about 114k barrels in 5 months and are well within that range. The fact that your spacing is 640 acre makes your acres doubly attractive, less expensive, more productive per foot over the life of the well and your acres aren't carrying as many dead weight non-producing acres that may never be drilled. If it sounds like I envy your position, it's only because I do!
You have 30 days from recipt of the AFE to elect to participate. To not lease or participate makes non-consent the default option. I'm sure the spacing was pooled from the very first well. A risk penalty hearing can be whenever. I wouldn't dream of protesting the risk penalty unless they made the mistake of not offering me a lease or not offering me participation and even then I would wait until the wells were paid off and with a healthy margin, because if there is the risk of even $1 of loss to the operator, the NDIC will allow them a chance to offer you a lease or participation so that they could impose the risk penalty.
If I had your acres and someone offered me $3,000 per acre and 20% I would say no. If they asked me to reconsider I would take 3 seconds and say, um no, if they wanted a seond opinion I would have my brother tell them no. Somebody needs to lease you if they are going to make substantial profit. 50% of actual cost of drilling risk penalty is not what they are after. If I were the operator and my hands weren't tied by a most favored nations clause, I would throw stupid money at you attached to a confidentiallity clause. Would you lease for $7k an acre and 20%? That really isn't that much money to secure the lease of a small holdout, after all the well cost more than that per acre, I can already see the production and if I can't lease you, the most money I could make is capped to a 50% actual cost of drilling and a reasonable profit on supervision which hasn't added up to much of anything on my wells to date. If they have to lease you to make serious money and they can't lease you, the extra money becomes your problem and yours alone. I hope you can bear up under such a burden.
While there is little to do while you are waiting for your well to pay out and recover the penalty, there is some responsibility to learn about the business, read the law and understand it. If they really did pay you 1/16th the law would have told you that 1/8 is the legal minimum. Look into setting up an LLC. It's better to have the knowledge before hand than to have to scramble to find it. Possibly you could participate in a couple acres in at least one well and go non-consent in the rest and save a few thousand dollars on a few acres, you can already see the production, I'd pick the better well. If not these wells, maybe the next wells. Do not invest more than you are willing to have tied up long term or possibly even lose. The success rate is very good but someone has to get those 1% of wells that aren't going to pay out in 10 years if ever, do plenty of research ibefore you participate in an undrilled well. Otherwise, just enjoy it. Jed Clampitt was an owner and not a lessor!