I doubt that you can participate at this point, though I’m no expert. There may be no reason to participate. In order for the oil company to assess the 50% penalty, they had to file some document with the State, and notify those involved. My cousin (an attorney) says he never received any notification. There’s also the issue of we now being on our third ‘driller.’ If there is no penalty, you have the best of all worlds, from my view. I laid out around $17000 to participate, and have gotten back around $10,000. In the beginning I had hoped to break even around 18 months into production. You will have laid out NO money, and will eventually pay your share out of the oil being drilled, and IF/PROBABLY no penalty. So I’ve lost the use of the $17000, while your share will come out of current earnings. When your share is paid off, the rest is gravy (less small ongoing operating costs). It is strange that you were never offered a lease. Doesn’t seem reasonable that you could incur a penalty if you didn’t have all three options to choose from. I made my decision to participate after seeing about three months of production. The December numbers should be available around February 15.
Ed, you probably would have broke even already if they had steadily produced your well. out of 10 months production I can see several months had alot of down time and only produced 7 days (first month), 20, 17, 6, 11 and 8 days, of ten months showing you are missing over 100 days producing. You probably also need to audit the operator at about the 3.5 year mark, they can be pretty petty about owners participating and might have overcharged you on drilling costs. Operators consider anything short of 2 years to cost recovery to be a great deal but shorter is even better. To me even five years to be totally paid back would not be too bad, where else can I put my money and average a 20% return on my investment average over 5 years? Whatever I net after that is gravy.
If Mr. Bennett can not participate, then he does get his part of the well at cost and they have to pay him 16% royalty while the well pays out because to apply the 50% risk penalty the operator MUST offer a fair lease agreement (whatever fair means? ) AND offer Mr. Bennett a chance to participate. If the operator did try to impose a 50% actual cost of drilling and completing risk penalty, the thing to do would be to wait until the well had paid out and then challenge because then the operator would not be allowed to fix their mistake. If the well had not paid out, the court would likely still allow the operator to belatedly offer participation because of the slightest tiny sliver of risk that the well might not pay out, even if the well was just a week short of payout so I would allow a healthy fudge factor before I challenged.
Sorry, that should have been if Mr. Bennett does not get the opportunity to participate, not can not participate because there are many people who could not scrape up the cash on short notice.
Robert, thanks for the comment on the few days my well was active for several months. I made up a slew of reasons why that might have been the case: lower prices, anticipation of higher prices, no trucks top get it out, blah, blah, blah. I did look at the costs the driller provided in the JIB system. Around 90% of the entries in the file were backed out, so the data was in general a mess. I like the idea of auditing the operation in another year or so. Give me something to do in retirement (I’m 20 years in to it now and am running out of hobbies). Also good info on when to challenge the 50% penalty. I’ll pass it on to my cousin.
I wonder if it might be a good idea to be an active participant for Mr. Bennett. If the well has already produced over 127,000 barrels wouldn’t the well already be paid for and part of the 50 per cent penalty? From what I have read on these forums that would seem a pretty safe bet. Just saying… Or wondering?
I always learn something from your comments. You have never tried to take advantage of people coming to this site. You are very helpful and don’t hesitate to respectfully disagree with people trying to take advantage of newbies. Thanks for sharing your knowledge with the common person. I think you should write a Bakken mineral rights list of things to look out for. I guess maybe you have in all these posts. I wish you many good wells on your interests! Thanks, Lon
I’m about to undergo my first income tax season with my well. I’m a participating owner, not one who leased. My original drilling company sold the operation to a second company who then sold to a third. I received income from all three companies in 2013. I’ve received 1099s from the first two companies. I had expected 1099s from the second and third companies, but not from the first. From the first I expected a K-1. Anyone give me solid information on what I should have received from the three companies?
So, I have been away for awhile from the discussion groups. What prompts my return, is a lease on mineral acres is expiring in April this year. It was a 4 year lease. I have heard nothing from the leasing company since the lease was agreed to 4 years ago. 14.54 net mineral acres. Owned by my siblings and me. GMX resources is the last contact info I have. Township 147N, Range 99W, 5th PM
** Section 34:N2**
320 gross acres. 4.5454% ownership. 3/16 royalty. We do not live in the area.
Any information anyone can give me as to production in the area, or anticipated drilling, etc. would be greatly appreciated. What are the chances of someone wanting to pick up the lease again in April? Is there value to these particular mineral acres. If there is interest in the re-leasing, what are people getting for a signing bonus now? Much appreciated. Bob
Mr. Ward, Kodiak has a couple decent-good wells just south of you, I would contact them when your lease expires. KOG is not may favorite operator but I would put them a couple notches above GMX on the food chain.
How do people know when their leases expire. I have just been receiving royalties, no other contact with the oil companies. I simply get the checks that would have gone to my mother before she passed away. I don’t think she ever signed a lease or spoke with anyone regarding her mineral rights and now I’m trying to figure it all out.
Bart, I’m not all up on NM non-consent but there is probably something in the statutes that says a lien would be placed against your minerals should the well not pay out and recover the penalty. That is the way it works in ND.
I do not have any old leases, only distribution orders. I have been getting paid on a couple of the wells in McKenzie County but there are more producing wells there and in Williams County that no one in the family even knew we were a part of. My mother has been gone for 3 years and was ill for several years before that. I believe that she was, at some time, approached about the wells we are getting paid for but was never approached about the others and simply assumed that those mineral rights were worthless. I did check and there are producing wells on most of the plots. No that I have perfected title on those plots, should I be contacting the oil companies involved?
The proper deeds are all being filed this week. I believe the lawyer did a title search as well. My mother was quite ill in the years before her death and blind. We thought her affairs were being looked after but, at least when it came to the mineral rights, this is not the case. She may have been contacted without even knowing it.
Yeah your best bet is to go to Certified Petroleum Landman school, you’ll have no problem understanding things after that…secondly take some online courses, (www.petroleumeducation.com) which I’d already sent you. Or you could hire a pro like I’d offered you with my Dad and I but you’re going to have to offer some incentive beyond hourly rates because most of us are already very busy. In fact, you never replied to me but others did so I’m off the table but there are others out there, easy to find on the NDRIN site. You could call a land firm like Diamond Resources in Bismarck and see if they’ll take you on but again I think they’ll want some incentive. Those are my ideas, others will have a different take, good luck!
Janie,
Sounds as though you and your family members may need a minerals manager to handle and track down all of your mineral holdings. You have a McKenzie County Group member by the name of Gary Hutchinson that knows the North Dakota oil and gas business very well. He is in the Minerals Management business. That’s who I recommend you to contact. I have an idea that a Minerals Manager’s hourly fee wouldn’t be as costly as an Oil and Gas Attorney. Just my opinion. Good luck with your search.
Gary L. Hutchinson
303)279-4113
Clint Liles
So what Ed said is true and you have a working interest in the well and that goes on as long as it produces. If a new well is proposed on the lease, you’ll be notified with an option to join that well. This is an anomaly but once I went non-consent on a well in NM, early 90’s, it never paid out or came close to covering the 100% penalty (NM has a higher penalty by state law); I participated in a new horizontal well and the company began taking revenues from the new well to pay off the old well. We’ll see if that holds up from a legal standpoint, but for now, they’re doing it.
Janie, you may not even have to pay the 50% risk penalty. If neither you or your mom was offered a lease, which you refused AND an offer to participate which you also refused or did nothing, the operator must do those two things to impose a risk penalty. Wait untill the well pays out then challenge the risk penalty when there is no more risk.
Janie, the lease expires according to it’s own terms. Look at the effective date on the lease and add the number of years and that is when it expires unless something “saves” the lease, drilling operations, actually getting a well and production, reworking operations to establish or re-establish production and sometimes on gas wells, shut in payments. If they were not at least pushing dirt around with a caterpiller tractor for a well the day before your lease ends, your lease probably expired according to it’s own terms. I hope you have a copy of the old lease.
Janie, if your mother did not sign a lease, she became what is called a non-consent owner. This means that she is responsible for paying her share of the drilling costs, and probably a 50% penalty on those costs. That money would come from the revenue produced by the well. While the well is producing, she would receive something like 16% of her share of the production, with the other 84% going to the driller to pay off your mother’s share of the drilling costs. When her costs (and the 50% penalty, probably) are paid off, you would receive 100% of your share of production, less small drilling costs.