Hi,
My brothers and I have mineral rights in ND in Williams County, T156N, R101W, S 28 & 29.
We were first contacted by a landsman 18 months ago who wanted us to sign a lease; then we contacted an attorney who advised us to just wait and not lease if we did not need money up front.
We decided not to sign a lease, just to wait to become a participating member when and if there is oil activity on this property. We keep track daily of new permits, companies drilling in adjacent sections to ours. There appears to be one company that is closest to ours with several active wells; when would we be contacted regarding exploration on our section? Can we go onto company websites to track their present output on active wells?
Thanks for any information and/or advice; we initially were told that within one year there would be activity on this property, but nothing as of yet.
Pat Ohman Maloney
When the operator is ready to drill a well on lands spaced with yours, you will receive an authorization for expenditure. I have several. You will have 30 days to express your desire to participate, or not, as the case may be. That isn’t alot of time to raise money. If you intend to participate I suggest you have the capital lined up ahead of time. If you do not lease, or participate, you will become a carried interest and face a 50% penalty in addition to your portion of the costs of the well. If you have 200 net acres in a 1280 spacing and won’t lease, you probably aren’t a high priority in the drilling schedule. If you lease, the operator gets 80% of your oil cheaply. If you participate the operator gets a cheaper, if less profitable well. If you are carried interest, the operator assumes almost all the risks and has their earning potential drastically lowered for your acres. Operators don’t drill wells to earn the 50% penalty of your portion of the cost of the well, they expect to make X times of the cost of the well or they wouldn’t drill it. Being carried interest in ND, you will also receive a 16% royalty or the weighted average of what everyone else in the spacing leased for, whichever the operator elects, from barrel one. The other 84% of your oil will go to pay off the well and penalty. Do alot of homework and good luck with whatever you decide.
Thanks for your reply; our attorney advised us to wait until the oil company recoups their drilling costs, then become a participating member; not become one right up front as we do not have the capitol. That is a choice, correct? If I understand you correctly, we perhaps are not high priority for drilling if we are not leasing up front? What would be our best option to make the most money, if a well is successful?
The four choices were were given were to do nothing, to lease the mineral rights, to become a participatant and have to come up with money for the costs, or to wait until the operator gets back their costs and then participate. I wish I was more knowledgeable in all this.
Pat Maloney
r w kennedy said:
When the operator is ready to drill a well on lands spaced with yours, you will receive an authorization for expenditure. I have several. You will have 30 days to express your desire to participate, or not, as the case may be. That isn't alot of time to raise money. If you intend to participate I suggest you have the capital lined up ahead of time. If you do not lease, or participate, you will become a carried interest and face a 50% penalty in addition to your portion of the costs of the well. If you have 200 net acres in a 1280 spacing and won't lease, you probably aren't a high priority in the drilling schedule. If you lease, the operator gets 80% of your oil cheaply. If you participate the operator gets a cheaper, if less profitable well. If you are carried interest, the operator assumes almost all the risks and has their earning potential drastically lowered for your acres. Operators don't drill wells to earn the 50% penalty of your portion of the cost of the well, they expect to make X times of the cost of the well or they wouldn't drill it. Being carried interest in ND, you will also receive a 16% royalty or the weighted average of what everyone else in the spacing leased for, whichever the operator elects, from barrel one. The other 84% of your oil will go to pay off the well and penalty. Do alot of homework and good luck with whatever you decide.
Ms. Maloney, if the operator locates you and makes a good faith effort to lease you, which you do not accept and offers you a chance to participate and you do not choose or cannot afford to do so, you will be a carried interest subject to a 50% percent penalty from the start with no choice. I hope the lease you decided not to sign was not from the operator of the well. I have sent you a friend request.
Ms. Maloney, I understand what you are saying. I had a discussion with my lawyer also. The wait till the well recovers drilling cost option only exists if the operator makes a mistake in not contacting you or can't locate you. If I understand correctly the operator will make a search to find all who hold title to the mineral rights before drilling and again getting title opinion before paying royalty. If you can't be located, there is a small chance things might work out just as you'd like. If you have a statement of claim or a recorded mineral deed with your current address, I think they will find you and your options will be lease, participate or be carried. If they can't find you they can set up a mineral trust in your name, with the county treasurer as trustee, and the trustee will sign a lease in your name. Diamond Resources even set up a trust AFTER dealing with my brother and myself for 8 months and recording a memorandum of lease for the lease my brother signed with them for which he was never paid. In essence Diamond committed fraud. They did set up a trust and the trustee did sign a lease for them for $150 an acre and 1/6 ( the county gets half of the signing bonus, they will sign it ). If you are UNLOCATABLE they can do this to you also, it is perfectly legal if they cannot locate you. In our case it also happened in 1 day; there was no warning, the public notice was waved, no affadavit of due diligence was required. I don't want to scare you, but if the lawyer didn't mention these wrinkles, you ought to do a little research, look up Unlocatable Mineral Trust. You could end up leased against your will at terms you would never agree to, with no recourse whatsoever. I recommend that everyone have at least a statement of claim on file with their current address. I think it's better to be found than possibly having total strangers agree to lease terms for you. I hope you do look into this. Good luck.
Hello,
We have our mineral deeds recorded in Williams County, so we are the legal deed holders. According to the atty we contacted in Dickinson, ND, the information he gave was that we are notified when an operator wants to drill as we are the rightful mineral rights holders. If we choose to lease, we check that box. If we choose not to participate in initial drilling, we then check that box. Once the operator recoups drilling costs, we then become the participating owner; this information is all in ND mineral code law. It was recommended to us since we do not need the money up front from a mineral rights lease, to wait to become a participant once drilling costs are recouped. Legally we would have that right; the initial landsman that contacted us was from Diamond Resources and he was quite persistent that we sign a lease; in the end, we chose not to.
Our concern is that once a company is turned down for mineral rights via a lease, they lose interest in that property and other operators would also lose interest. Perhaps we are being completely naive in this, but with the "oil boom" supposed to include Williams County in a big way, it is strange we have not heard anything. I realize everything is in the interests of the operators as they put forth the initial capital for drilling with all risk included.
Pat
r w kennedy said:
Ms. Maloney, I understand what you are saying. I had a discussion with my lawyer also. The wait till the well recovers drilling cost option only exists if the operator makes a mistake in not contacting you or can't locate you. If I understand correctly the operator will make a search to find all who hold title to the mineral rights before drilling and again getting title opinion before paying royalty. If you can't be located, there is a small chance things might work out just as you'd like. If you have a statement of claim or a recorded mineral deed with your current address, I think they will find you and your options will be lease, participate or be carried. If they can't find you they can set up a mineral trust in your name, with the county treasurer as trustee, and the trustee will sign a lease in your name. Diamond Resources even set up a trust AFTER dealing with my brother and myself for 8 months and recording a memorandum of lease for the lease my brother signed with them for which he was never paid. In essence Diamond committed fraud. They did set up a trust and the trustee did sign a lease for them for $150 an acre and 1/6 ( the county gets half of the signing bonus, they will sign it ). If you are UNLOCATABLE they can do this to you also, it is perfectly legal if they cannot locate you. In our case it also happened in 1 day; there was no warning, the public notice was waved, no affadavit of due diligence was required. I don't want to scare you, but if the lawyer didn't mention these wrinkles, you ought to do a little research, look up Unlocatable Mineral Trust. You could end up leased against your will at terms you would never agree to, with no recourse whatsoever. I recommend that everyone have at least a statement of claim on file with their current address. I think it's better to be found than possibly having total strangers agree to lease terms for you. I hope you do look into this. Good luck.
I’m sorry but I have never heard of anyone participating after the operator recovers cost of the well but no penalty. I wish it were so. Maybe that was from a time when ND didn’t have a forced pooling statute. I assure you, that a forced pooling law exists now with a 50% penalty that the operator will elect to collect, otherwise they took the risk and drilled your part of the well for free. They can and will collect the 50% that the state allows. Good luck.