Can anyone tell me the going rates for leases in Williams Co. 156n 101w sec 10 and 15. 240 net acres. What should one expect for royality %, and per acre? Thanks for any help.
Mr. Borgen, you already have some nice wells, operated by Liberty Resources LLC. Both wells were drilled from section 15, the
SYL TE 156 - 101 -10-3-1H which has produced 88,063 barrels oil in 216 actual days of sometimes sporadic production, the well has a pump on it now. This over a period of approximately 9 months with the last month I have figures for being february @ 7,176 barrels oil.
SYL TE 156 - 101 - 15 - 22 - 1H which has produced 78,012 barrels oil in 9 months, has pump installed and produced 5,960 barrels oil in february.
Both wells were spud in January 2012. If you were leased at that time or even a few months before, your lease is most likely in effect.
If you did not lease these acres, I would ask myself "why stop a good thing now?" because I wouldn't mind being force pooled in these wells. I would do some research if you are not leased.
I, don't have much in the way of really recent information on lease bonus and royalty in your township and range but with the good wells already drilled I would ask $5,000 per acre and 23%. If the operator didn't want to pay that they could force pool me, pay me 16% royalty from the first barrel and when the wells pay out and recover the risk penalty I would take my 100% less cost of production and expenses. I would make much more [25% to 33% more] than what the operator would have made per barrel because I wouldn't have to pay anyone a royalty.
If possible you might consider participating in some acres because you would save the risk penalty on those acres and a penny saved is a penny earned. If you are force pooled, you can participate in future wells. If you lease you are leased in all wells until the oil and gas are gone, no going back. The wells I am forced pooled in, the operator says I can always still lease to them if I wanted to, I wonder why that is? Possibly because they would make alot more money and I would make alot less, might have something to do with it.
If you are unleased, it would probably be worth your time to hire an oil and gas professional to assist you but learn what you can and watch them like a hawk.
Good luck.
Mr. Borgen, I forgot to add that if you have good title that you have interest coming on royalty payments more than 150 days after first sales.
Thanks for reply. Another question. If the acres are forced pooled and no lease can the acres be leased to anybody or just the operating company? I could find nothing in the law that requires a person to lease only to to the operator. Anybody know? Can you tell me the law or court ruling?
You are not bound to lease to the operator until he has made a good faith offer which was refused and then the operator must offer the opportunity to participate, after which you will have 30 days to decide what to do. During that time, you can lease to anyone you wish. After that, you are force pooled by default and can only lease to the operator.
If there was an offer (not from the operator) for 40% cost free royalty and only a $10 total signing bonus, would this be good? The company that would lease would carve out a 3% overriding royalty to make its money and then go nonconsent. This would leave the 57% working interest that the operator could collect all it costs from. Any cons you can think of?
I would beware making any deals until you have had some time to sleep on what you have learned so far. Let it sink in. The owner of the minerals force pooled only owes his proportionate share of the well plus 50% penalty of actual cost of drilling for his share of the well. A lessee would owe the proportionate cost of the well plus a 200% penalty.
I would suggest two things, 1) hire someone to help you and even keep an eye on him. 2) only deal with people who have participation cash up front. Someone wanting to go non-consent on your behalf should be a dead giveaway that they don't have a firm grasp of what is involved here.
I think if you have 240 net acres that if you could just obtain your 16% statutory royalty from the oil produced already, you would quickly lose interest in leasing. The only reasons people want to lease or buy from you is so that they can make the money that you would have made, less the lease royalty or purchase price paid to you.
Try a little math 100,000 barrels of oil at $85 per barrel (conservative) is 8,500,000 million dollars. I think if you average both wells together you will have 200,000 barrels in the first year so lets say $17,000,000 worth of production in the first year on 2560 acres, both spacings added together. 17 million divided by 2560 = $6,640 per acre X 240 acres = 1,593,750 X .16 statutory royalty = 255,000 less taxes and charges for transport and post production costs, I would count on keeping 60% of that. The wells will decline so it will take 3 to 5 years for them to pay off plus the penalty so your royalty will decline during that time but the wells will pay off, won't be declining at the same rate and you will be collecting 100% less cost of production and expenses which are deductable as a working interest as they would not be if you were a lessor. You will be making 25% to 33% more per barrel of your oil than the operator does off his leased acres because you don't have to pay anyone a royalty.
Once you are a working interest I think you will surpass the bonus and higher royalty of those who leased within 12 to 18 months and outpace them at a rate of 3 to 1 or more, UNTIL THE NEW WELLS ARE DRILLED. Have you gotten that far yet? Those two wells will not drain the oil from those spacings, it's going to take more wells, anywhere from 2 to 10 more wells that will be drilled over time. If you lease, you are leasing those yet to be wells also.
I would say that a 40% royalty with no deductions other than taxes would be a fairly good deal and save you headaches, just make sure that who you are dealing with has the participation money and that your lawyer checks the contract very well so that the intent and the result are the same. Check carefully to make sure you will be paid because they will make sure that they get paid their money from the operator. If you need some earnest money at deal closure, to pay your lawyer or pay for probates, say so, because it could be months before you collect your royalty from the operator. The lessee does not get your lease until they pay the agreed amount.
Have fun thinking it over, worst case you have some money coming.
Mr. Kennedy,
Can you further explain your comment "The LESSEE would owe a proportionate share of the well plus 200% penalty"?
Say for example someone owns 10 acres of minerals in a 1280 spacing unit in an area where the average new well produces 100,000 barrels of oil in the first year.
Could you give us all an example of how much income you would expect to make and cost you'd expect to pay over 10 years for each of the options below (given $10 million cost per well and the average decline curve):
1. Lease: (for example, a lease at $1,000/acre + 20% royalty)
2. Participate
3. Non-consent
4. Other?
Always very interesting!!
Thanks, Lily
Lilly, if someone leases you [lessee] and does not assign your interest to the operator for cash and a royalty override, they are responsible for participating for your proportionate part of the well. If they can't or refuse to participate, their interest is carried and they would have their proportionate share taken from production until the proportionate share of the well is paid for plus a 200% actual cost of drilling and completing the well risk penalty.
The actual mineral owner would receive weighted average royalty in the spacing or 16% whichever the operator elects while the other 84% goes to paying for your proportionate part of the well plus a 50% actual cost of drilling and completing the well risk penalty.
Lily, as to income, the variables are almost infinite. Depending on the well, the operator and how he produces it, the price of oil at any given time of sale including any longer term contracts the operator may enter into. Does the operator install a pump to keep production up or is he satisfied to let production decline and have nearly free production from natural field pressure? Too many variables.
Lily, consider this, whatever the well produces, as long as it does continue to produce, it will eventually pay out. If you have to collect your 16% for 5-6-7 years, others may be collecting 4% more royalty than you until the well has produced enough to pay out and retire your risk penalty around 250,000 barrels and lets assume that the well only produces 500,000 in it's life and not the 700,000 that is often talked about, you would have your proportionate share of 250,000 barrels coming at 100% less expenses. Lets be really conservative here and say that your operating expenses are 20% so instead of receiving $80 [conservative] per barrel, you receive $64 after expenses, those who leased get $16 per barrel if they are not charged post production or transportation charges that are part of your operating expenses already, their royalty may only be $14 after charges, how long do you think it will take you to catch up and pass the 20% royalty that was only 4% nore than your 16%?
Would an average of $40 be better than $16 for your proportionate share of 500,000 barrels? More really because you would have tax deductions that the lessor would not. I love my CPA.
As for participation, if you have the cash and opportunity to participate in a $10,000,000 well that has already produced 100,000 barrels in it's first year, it will likely be paid out before the end of it's second year. If you can afford it, I would say go for it if other factors look good, like nobody drilling right next to your well with the potential to kill your well, less of a problem if you have good field pressure.
Cost of operating can vary greatly by well type. Thes XXL long lateral Bakken wells I was talking about rarely are candidates for a refrack which is probably the most expensive work that can be done on a well. I have never heard of a Bakken well completed with more than 10 frack stages being re-fracked. It is plain that it's going to be more bang for the buck to drill a new well rather than re-frack a Bakken well. Verticle wells and horizontal GAS wells are most likely going to be re-fracked, it's their nature and participation and non-consent for these wells should be on a case by case basis.
Transport of my oil cost far more than any other thing, save taxes.
These Bakken wells are fairly cheap to operate. I have a carried interest status of accounts here covered up on my desk that tells me that my 5 year old well producing 2k barrels a month is costing me $1.38 a month per acre to operate. This is after a price increase. I will just have to try and come up with the money somehow, maybe from the hundreds of dollars that well pays each month?
Lilly, I think I was conservative to a point just shy of being pessimistic and I think if the well is even poorer that there is still room to come out ok. If you are non-consent, and the well is an absolute dog, yes you lost a lease bonus and 4% royalty but that well is probably never going to pay out and recover the risk penalty. The operator can't recover from anything but production, nothing out of pocket from you. The operator could place a lien against the production of your minerals in an attempt to recover your costs from a future well, but how likely is someone to try again, since you are already held by production with a dog of a well? Even if they declared the well a dry hole and plugged it, are people going to beat a path to your door to see if they can drill another well and lose $10,000,000 too? Think about inflation, what money was worth 20 years ago vs today, if someone drilled you a new well 20 years after the dog of a well, the money from your production that pays the lien off will probably be worth about as much as so much toilet paper.