Mid-Continent offering $2000/nma, 1/6 royalty for minerals under home deep inside city of Midland. Part of the last 6 sections or so inside west Midland and is surounded by horizontal production. I’m not sure they will ever find a point to spud these strings with the city build up.
Is Mid-continent an oil company or lease/mineral buying group?
Is 1/6 typical for these in tiny city interests or a lowball?
Thank you!
Most of us would go higher on the royalty in Texas. There are several Mid-Continent companies. What is the rest of their name?
The letterhead reads exactly:
Midcontinent Oil & Gas 6608 N Western Ave #183 Tulsa OK 73116
Heck I think prime horizontal acreage unencumbered by the city restrictions lease at a much higher per acre rate and 1/4 all day long out here but there is a real access issue with these last sections on the middle of Midland. They are going to have a heck of a time finding a location for a 2 mile string that is not in the parking lot of a Whataburger or something but I am no expert for sure.
Thank you for your reply!!!
Mid-Continent has been around for a while. I agree with finding a safe surface location in the middle of town. Maybe they can do a three mile lateral…
You can get a 1/4 royalty
If they ever end up drilling it, they’ll eventually offer a 1/4.
I had two more questions please. This landman represent Midcontinent wants me to lease this I understand and that is her motivation, but she is claiming that they will have no problem with drilling access to this center of Midland acreage as they already have 2 location approved and are planning on a 5 mile horizontal string. I have never heard of such a thing and we do have quite a few small interests scattered around. She also is claiming that they can drill through the other leased production that surrounds these residential tracts. Have you heard of such a thing?
I thank you so much!!
I’d be impressed if anyone is drilling a 5 mile lateral. That would be a new one for Permian. There have been a handful of +/- 4 mile wells. You can drill through the other production, I believe you will need a waiver.
Where do you live? I think everything can get reached but it may take some longer than normal wells from Claydesta or else Midland College (or the airport, I suppose). The mall is probably not long for this world too.
Other than curiosity, I’d say that I’d be more concerned about terms and less concerned about how somebody is going to drill it. But I guess being concerned is better than not caring, my MIL had 0.3nma in Midland and just decided it wasn’t worth leasing and then when my wife sold the house she wouldn’t even bother to sever the minerals. Sigh.
Instead of concerning yourself with the company’s drilling plans, it might be better to concentrate on negotiating better lease terms. Make a counter offer of 25% royalty and a higher bonus. A truly cost free lease–not just one which reads “free from costs”–would be ideal. Also there should be a no surface use clause. If you do not lease, you might be force pooled if the company convinces the Texas RRC to do a MIPA order. If there is no MIPA order and the wellbore is within a certain distance from your property, then you would be a non-consenting owner.
Thanks you both for the replies. Unfortunately I kind of have to be concerned with the overall state of things as my brother and I are trustees and executors for some family stuff and we have a remaining elderly patriarch that is all up in this thing asking questions. A bit of a pain. We are clearly overthinking the production angle but are being asked to death on this end.
It is not where I live but the home in question is Godfrey at Wadley more or less. It is one of a couple of properties. As you suggest there are not many access points and is far enough west wherein Airpark and MC might be too far east. We have plotted this pretty well on the GIS maps also. Short of a 4 miles string I just don’t see it although the mall idea is very interesting. Sounds like a 5 mile is a dream but maybe a 4 mile is doable.
As you and AJ suggest we are going nowhere on this without a shot at a 1/4 royalty anyway. We have historically sacrificed bonus for increased ORR on small stuff. I presume someone would not be interested in leasing this if they did not think someone could get at it and that is probably how I leave this and focus on 1/4.
As AJ mentioned, I do use some lease templates that scratch “production costs,” and did not think of the surface right exclusion. That is a great point.
Thanks again for all the great info. All good stuff!
You’d have to drill E-W laterals if you went from college/airpark/claydesta to develop the Northern part of the remaining open spots.
I mean if the endgame is to spend $250m drilling 20 two-mile laterals you can probably figure out how to buy surface somewhere to drill a 1280 unit under Midland. I’m sure the mayor likes campaign contributions.
While waiting for my post with Texas RRC links to be approved by a moderator, I will share this language from a Midland county MIPA order: "7. The mineral interests of owners of all unleased tracts within the Rebel 140 Unit ate pooled as owners of a 1/4 royalty interest and a 3/4 working interest, proportionately reduced. These owners’ share of expenses, subject to a 100 percent charge for risk, is payable only from 3/4 of production and not from their entire mineral interest.”
It seems fairly straightforward that mineral interest owners of unleased tracks would get a 25% royalty, but I am hoping one or more of the oil pros on this forum will explain the working interest and risk charge language in the order.
This link will open the Texas RRC’s Mineral Interest Pooling Act Index page. Depress and hold down the “Ctrl” key on your keyboard, and while continuing to hold it down, depress the letter “f” key. In the pop up search screen, type in “Midland” and scroll down to MIPA orders for Midland county. I have included a link to one with multiple wells below. Note the language I excerpted.
Click on this link to open a Texas RRC MIPA order for wells in Midland County. “7. The mineral interests of owners of all unleased tracts within the Rebel 140 Unit ate pooled as owners of a 1/4 royalty interest and a 3/4 working interest, proportionately reduced. These owners’ share of expenses, subject to a 100 percent charge for risk, is payable only from 3/4 of production and not from their entire mineral interest.”
NMoilboy, Would you mind translating the working interest language of this* RRC MIPA order? If 1 nma under a 25% royalty cost free lease in a Midland county MIPA order unit is is worth “x” amount, would an unleased owner’s 1 nma in the same unit be more valuable given the 3/4 working interest subject to the 100% risk charge?
My MIPA skills are weak.
Assuming that you still get the 1/4 royalty payment after payout, you are basically comparing the 3/4 working interest (after 1x payout) to the value of the bonus. With the bonus due today and the WI portion in the future. So using some discount factor.
So it depends on the quality of the well (how soon does it payout, and how much is the post-payout value ) and the amount of the bonus. Those two things probably correlate positively, but its not as easy as saying Case B is worth 1.15x
Sorry thats all that I got. My land friend implied MIPAs screw over the unleased owner but its not evident to me that that is always the case. Shrug.
Thank you for expanding on this. Does 1x payout mean 200% of the drilling and completion costs, e.g., $10 million well would have to produce $20 million before the unleased MIPA working interest begins to pay? How long does it take for an average hz well in the Midland Basin to payout? If there are 15-20 wells in each Midland county MIPA unit…
AJ11, as a non-lawyer I read the 100% risk penalty to be in addition to the original well payout, or as you say, really 200%. Mineral owner is at a real disadvantage in these things since the operator holds all of the info. It isn’t like you can look on the RRC and see if one well is paid off and another one isn’t. Also, owner is made part of the working interest with no choice or other options. Since the costs and difficulty in drilling vary with each situation, and since the data is fairly secretive, I’m not sure you could get a meaningful average time to payout. Obviously good producing wells payout sooner than poor producers, but at best outsiders can only guess at the actual time.
PeteR, Thanks for your reply. I have heard of requesting “payout summaries” from oil companies but have no experience with that and have no idea if companies are required to comply. It seems as though the RRC assigned working interest on profitable wells would have value as NMoilboy indicated.
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