Can anybody tell me what a “Paid up gas and oil lease” means? We were notified by Diamond Resources that we have an interest in acerage located in township 149 North, range 98 west, of the 5th PM, section 9:NE 1/4 SE 1/4. They are asking us to agree to the lease terms of 20% royalty for oil and gas less cost of production for the oil and gas mined on the property. This is all new to us as the mineral rights were obtained by Inheritance. They also are offering $2000 per acre signing bonus. Thanks for any help you can provide as we live out of state and don’t have a clue. Continental Resources is the lessee and we were told that they are already drilling on the property.
First of all make sure that you read that lease over and over. If you need to have an attorney from out of the oil basin read it (hard to find because they are all oil and gas attorneys for the industry). There is one in Bismarck that I know and will give you his name privately if you want. The royalty, in my opinion is too small. You can get more The signing bonus is ok. Do not do a lease for more than 3 years. You can offer a bonus for another year and get paid again but DO NOT sign a lease for more than 3. Make sure that you exclude Coalbed Methane. That is an entirely different animal. Think about the surface owner. This well is going to be on his land and he will, if they pay him, get a one time minimal payment for the land they will use on the surface and be there for 30 years. There are things you can add to a lease to protect them. Do not allow the lease use of oil gas or water free of cost. Make them pay and do not allow the use of water without the surface owners permission. That is what I have for now. There are many other things that you can do that others can help you with. I also would have the word mined removed from the lease. You can change it to drilled. Frankly, I would not sign a lease that includes less the cost production or offered by Diamond Resources but that is another story.
You already have a well, the Brooks 1-4H drilled from section 4 just north of your section 9 and the wellbore passing through section 9. Spud date(commence drilling) 1-18-2012. Cumulative oil production of 9,789 barrels for 36 days as of june which is the last month I can see production for. Gas is already being sold also which is much better than it being flared off (burning) because you don't get paid for it if they flare it. It's early days yet but I think it will be a good commercially viable well, profitable. I myself have had problems with Diamond Resources. I recommend you only deal with them by mail so you have a record of everything. $2,000 bonus per acre is not lowball but you could tell them you want $3k or $4k and negotiate. If you have more than a few net mineral acres I suggest that you get help negotiating the lease, it could make you thousands to tens of thousands of dollars over the life of the well and any future wells to be drilled. I think you could list your minerals for lease on the home page of this site at the bottom. It's always good to get competing offers and many might like to lease you and participate in your well because it's producing, they wouldn't have their money tied up for years waiting for the well to be drilled, there is 0 chance that their lease with you would expire with no drilling, and they get to look at the production before leasing you, takes alot of the risk out of it. Good luck with your well.
Thanks for all the great info. I did some investigating and found the well status as"A". Can you tell me what that means vs. Confidential? Thanks and have a nice day!
A means it's producing. Your well is already off the confidential list for the world to see, that's how I was able to give you the production info. Even while the well was confidential the operator still had to inform the state of production and report oil sold. Confidential usually pertains to formation and possibly bottom hole of the horizontal well. I think there are a couple of in depth explanations of what confidential covers but I think the average mineral owner couldn't use or do anything about such information anyway. Other oil companies may be able to do something with it so the operator requests confidential status, sometimes even for water wells and salt water disposal wells.
thanks again. I really appreciate your help. Can you tell me how to get the production info for the well? Thanks!
I have the $50 per year subscription to the NDIC O&G Division which allows me to look at production from any non confidential well in the state. I consider it the best way to track drilling and production on my ND minerals. The people at the NDIC O&G Division are great people and will tell you if you ask them the production, but if everyone did that monthly I think their office size would have to at least tripple and the subscription allows you to look it up for yourself 24 hours a day.
I’ll subscribe and thanks again for all your help!
I know this is pretty basic, but how do I find out what the production acerage is for the well? Thanks again for all the help!
On the NDIC O&G site you can use the GIS server map to find your legal description, and on the right hand side of the page are filters to show different things on the map. If you select drilling/spacing it will show a border around the selected spacing, you can apply and remove the effect to make it more apparent if you need to by unselecting drilling/spacing and clicking zoom to section again. I hope this helps.
Thanks for the quick response. I’ll check to ser what I can find.
Ok, found the oil field for the section I was looking for. I’ve called Continental Oil a couple of times for more info. and left msgs. but no response from anyone. I was told by a landman that based on monthly production of 80,000 brls per month we could expect a 20% royalty of about $170 per acre per month before expenses. He said that this is based on the fact that the well is drawing the oil from 1280 acres. Is the 1280 acres the same as a “division order” ? We have yet to receive anything from Continental Oil relating to any of the info. I’m trying to get. thanks for all your help as we are trying to learn as much as we can before we do anything.
Sorry, correct that to 8,000 barrels per month.
Michael, I can't tell you whether the landman is right or wrong, as I have no idea how many acres you have. I think you need to understand that what the landman tells you may not be 100% accurate. The landmans employers want to make money off your oil and the well is already drilled and they can't just take it back. What they can do is tell you whatever it takes to make you sign a lease favorable to them. Did the landman tell you that you may only receive about 50% to 60% of that $170 per acre after taxes and expenses ? The landman is probably basing the royalty on todays oil price of $90 +, what happens if the price drops like it was a couple months ago, you could be looking at $50 per acre/month after taxes and expenses, and that the wells production usually declines fairly quick 10% to 30% a month sometimes. That $170 can quickly turn into $40 or less per month in the space of a year. Continental will likely not tell you anything of use to you, after all they are negotiating with you for how much of the money from your oil they get. I think you should be looking for someone else to make you an offer and you should be getting help with the terms of the lease. The well is there already, you are already in business with someone, Continental would like it to be them, now what you are doing is working out the terms of how much you get paid and how, and I would want clauses to make sure I were paid. It is extremely likely that if you have not already done so that you will have to probate the estate you inherited the minerals from in the state of ND before you collect a penny of the royalty, because ND does not recognize probates from other states. It could cost you more than the signing bonus to do ancillary probate in ND and you may get nothing beyond the signing bonus until you do. Did the landman explain that to you? If the probate has not been done, or done in another state than ND, you need to consider this.
MICHAEL J. said:
Ok, found the oil field for the section I was looking for. I've called Continental Oil a couple of times for more info. and left msgs. but no response from anyone. I was told by a landman that based on monthly production of 80,000 brls per month we could expect a 20% royalty of about $170 per acre per month before expenses. He said that this is based on the fact that the well is drawing the oil from 1280 acres. Is the 1280 acres the same as a "division order" ? We have yet to receive anything from Continental Oil relating to any of the info. I'm trying to get. thanks for all your help as we are trying to learn as much as we can before we do anything.