I and my two brothers each inherited a small percentage of mineral rights in Logan County in Section 26-17N-4W. When inherited, I began receiving royalties from Sundance Energy. Then this year, it appeared to switch to royalties from White Star Petroleum from the same property. Now I have received a letter from an agent with Jackfork Lane Inc., stating their client, Brown & Borelli, Inc. want to drill a vertical well on this property and gave me three options to choose from. One offers a bonus of $125 per net acre with a 1/8 royalty. The second offers $100 per net acre with 3/16 royalty. The third option, however, offers for me to participate in the drilling “to the full extent of your interest.” My questions are:
- Does this third option mean that I would only have to pay the percentage of the drilling costs commensurate with my mineral rights percentage? And I would retain the mineral rights and receive royalties equal to my mineral rights percentage?
- Would this 3rd option be more to my advantage than the other two?
- Is there a down side to sharing in the drilling cost option (3rd option)?
- My two brothers did not receive letters from Jackfork and I’m wondering why not.
- I called and talked with a guy at Jackfork (not the agent who sent the letter), who said that I might not be able to participate in any of these three options from this pending well if I already have leased mineral rights to another company (White Star). Is this true? Can I not lease mineral interests or receive mineral royalties from more than one well on this property?
Thank you for any help on this!
The answers to the question depend upon the description of your acres and whether the White Star lease covers your whole ownership. The original lease may have only covered part of it if it was force pooled.
As to the options. Those letters are quite often sent out before real title work is done, so can be wrong on who they actually should go to.
Most of us would prefer the higher royalty as it usually pays out better in the long run.
- you can choose how many acres you would want to participate with. Yes, you would retain your mineral rights.
- The option has pros and cons. The pro is that you would get more royalties, but the cons are that you have to put the money up to pay your share, you need to have a good oil and gas attorney and a good accountant, you need to be able to lose every penny that you put up, you hold yourself and your heirs for decades if the well is successful and you have to keep paying your share for decades and decades in operating costs. You would be smart to put the producing minerals into an LLC, so that if the operator gets sued and the other working interest partners get sued, you won’t lose your shirt if the judgement is against you. WI is not for the uninformed or new mineral owner.
- Lots of downsides, a few upsides.
4./5. Pretty sure that if you are held by the previous lease, you are not eligible here, but who knows. Better get an attorney if you are thinking about it. You can get royalties from more than one well, but if the acreage is already leased, then you cannot double lease. If the acreage was force pooled, then the deeper rights might be open. Don’t know the situation here. If the new well is a horizontal, then it will possibly cover more spacing acres than the first vertical well.
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