We recently inherited some mineral rights in Roosevelt County, MT and we are new to all of this. We are being approached to extend the current lease. What should we expect for bonus/royalty?
Carolyn:
More details would be helpful in answering your question. What is the term of the lease extension and where are the minerals located in Roosevelt (Township/Range/Section). Some areas of Roosevelt are currently "hotter" than others and this will impact your negotiation power (bonus/royalty).
Please post your Township and Range???? It varies Tremendously! Is there an operating well close to you,etc
T28N, R52E Section18: NE4
charles s mallory said:
Carolyn:
More details would be helpful in answering your question. What is the term of the lease extension and where are the minerals located in Roosevelt (Township/Range/Section). Some areas of Roosevelt are currently "hotter" than others and this will impact your negotiation power (bonus/royalty).
3/4 Indian Reservation; I have no info for that far west!!
Thank you anyway.
Dctex99 said:
3/4 Indian Reservation; I have no info for that far west!!
Carolyn:
Looking at the map of your area, there are numerous wells in the T28N;R51E;Section 10 & 11 areas. Also, several new permits to the south of this area. No wells or permits noted in your immediate area. I am not sure about the bonus amounts common to this area but I would not negotiate for less than $500/acre; 20% royalty and an extension of not more than 2 years.
Thank you so much for you input, it is very helpful. is there anything special we should look for to be in or not to be included in the lease?
charles s mallory said:
Carolyn:
Looking at the map of your area, there are numerous wells in the T28N;R51E;Section 10 & 11 areas. Also, several new permits to the south of this area. No wells or permits noted in your immediate area. I am not sure about the bonus amounts common to this area but I would not negotiate for less than $500/acre; 20% royalty and an extension of not more than 2 years.
Carolyn:
You could add a "pugh clause" to your lease which might benefit you in the future. Google "pugh clause" to learn more about this type clause and how it can effect your leasing in the future. You can also google it in the search engine at the top of this page and view past posts dealing with pugh clauses. Also, you can request "transportation free" clauses. These transportaion costs will be calculated in your royalty total and can mount up over the life of a well. In the past, I have had lessees agree to a transportation clause but wanted a lower royalty % to apply. Take your time and don't sign something without completely understanding the terms of the lease.
Carolyn said:
Thank you so much for you input, it is very helpful. is there anything special we should look for to be in or not to be included in the lease?
charles s mallory said:Carolyn:
Looking at the map of your area, there are numerous wells in the T28N;R51E;Section 10 & 11 areas. Also, several new permits to the south of this area. No wells or permits noted in your immediate area. I am not sure about the bonus amounts common to this area but I would not negotiate for less than $500/acre; 20% royalty and an extension of not more than 2 years.
thank you so much for you help. The lease does have a Pugh clause and a Shut-In clause. They have offered much less than you suggested and for a longer term, I am not sure where I go from here.
Carolyn:
As I stated earlier, take your time and don't get in a hurry to sign a lease that you will have to live with for a long term. Make sure that you are satisfied that the bonus and especiallly the % royalty is fair.
Carolyn said:
thank you so much for you help. The lease does have a Pugh clause and a Shut-In clause. They have offered much less than you suggested and for a longer term, I am not sure where I go from here.
Question??
If a oil company decides to drill on a particular 1280 where they do NOT have all 1280 acres under lease, are they allowed to do this? And then, if they don't have all 1280 acres under lease and they are granted a permit, does this mean that the person who had (let's say) 120 acres NOT under lease will simply receive the royalites and never receive any lease money? OR, does an oil compnay have to have all 1280 acres under lease before they receive a permit?
I ask this for clarity for Carolyn as our mineral rites are all under lease at this time.
Let me try again: Let's say Carolyn holds out for a higher lease amount...and doesn't sign a lease. Is the oil company, if they have a certain percentage of the 1280 under lease, able to receive a permit to drill anyway and Carolyn then is out the lease/bonus money...to then simply start receiving the royalties?
I hope this is a clear question...I've rewritten it several times to try and make sense...let me know if you need more clarity on what I'm asking!!
Thanks,
David:
The answer to your first question is that the oil company who has the majority lease hold is able to apply and obtain a drilling permit. Others in the spacing may elect to participate in the well whether it be other oil operators, brokers or individuals who elected not to lease. These individuals will be participating in the well but will not recieve a bonus amount up front since they elected not to lease. If you will google "paricipating in wells" in the search engine box at the top of this page, you should be able to read numerous posts on this topic. Several of our members on this forum has elected to participate in a well.
Thus...what this means for Carolyn is...?? If she DOESN'T choose to lease and a well is drilled...she will NEVER receive lease money for her mineral rights once a well is drilled on that land.
Thus...if I understand this...there are advantages to holding out for a higher lease and bonus, yet, at the same time, if one holds out too long...there could be a chance of loosing any lease/bonus money...right??
Dave
David, I was just glancing at the Montana forced pooling law 82-11-202 section C (remember section C and don't get confused by language addressing companies holding leases) which covers mineral owners and not companies that hold mineral rights through lease. The mineral owner who does not lease or participate in the well will receive a 1/8 [ 12.5% ] royalty from the first barrel and cost of drilling the well and equipment will be deducted from the other 87.5% until the operator recoups the proportionate share of the non-participating mineral owner then the mineral owner becomes a working interest and receives 100% of their proportionate share, they will also at that time be responsible for their proportionate share of the bills. There evidently is no risk penalty for a mineral owner. Companies that hold minerals by right of lease are subject to a 200% penalty if they do not participate.
David Peterson said:
Question??
If a oil company decides to drill on a particular 1280 where they do NOT have all 1280 acres under lease, are they allowed to do this? And then, if they don't have all 1280 acres under lease and they are granted a permit, does this mean that the person who had (let's say) 120 acres NOT under lease will simply receive the royalites and never receive any lease money? OR, does an oil compnay have to have all 1280 acres under lease before they receive a permit?
I ask this for clarity for Carolyn as our mineral rites are all under lease at this time.
Let me try again: Let's say Carolyn holds out for a higher lease amount...and doesn't sign a lease. Is the oil company, if they have a certain percentage of the 1280 under lease, able to receive a permit to drill anyway and Carolyn then is out the lease/bonus money...to then simply start receiving the royalties?
I hope this is a clear question...I've rewritten it several times to try and make sense...let me know if you need more clarity on what I'm asking!!
Thanks,
Interesting language....which seems to me to indicate that to have a lease is a better deal than to NOT have a lease...as 12.5% royalty is a pretty low royalty as I understand it. However, add in the cost of drilling, etc... and someone with more knowledge than me would have to figure this one out...
Thanks...
The point is that wells pay for themselves. You get 12.5% from the beginning and in 1 to 5 years you get 100% for however many decades the well pumps. You can get a little more up front [lease bonus and little more royalty] or wait a little while and make more per acre than the oil company would have.....because you don't have to pay anyone a royalty. You might put back the part that would have been royalty to pay the wells bills, but you could probably be satisfied with what the oil company makes, about 3 times what they pay in royalties ? Crazy talk, I know but I and a few others I know are doing it. My first non concent well should be paid out and risk penalty [ in ND ] retired in a couple of months. If my well were in Montana, it would have been fully paid out a couple of months AGO. I could have went for a whopping 4% more royalty for 1 year if I would only give up 80% of the money for all the years to come.
David Peterson said:
Interesting language....which seems to me to indicate that to have a lease is a better deal than to NOT have a lease...as 12.5% royalty is a pretty low royalty as I understand it. However, add in the cost of drilling, etc... and someone with more knowledge than me would have to figure this one out...
Thanks...
RW, I thought I replied, but poof it is gone so here goes again, Could you explain the "risk Penalty" further? And also is there any down the road costs to the mineral owner for well upkeep ect. ?
This way of doing things sounds interesting, so my question would be Why isn't everyone doing it this way? Thanks in advance for any insights you may have.... Brian...
r w kennedy said:
The point is that wells pay for themselves. You get 12.5% from the beginning and in 1 to 5 years you get 100% for however many decades the well pumps. You can get a little more up front [lease bonus and little more royalty] or wait a little while and make more per acre than the oil company would have.....because you don't have to pay anyone a royalty. You might put back the part that would have been royalty to pay the wells bills, but you could probably be satisfied with what the oil company makes, about 3 times what they pay in royalties ? Crazy talk, I know but I and a few others I know are doing it. My first non concent well should be paid out and risk penalty [ in ND ] retired in a couple of months. If my well were in Montana, it would have been fully paid out a couple of months AGO. I could have went for a whopping 4% more royalty for 1 year if I would only give up 80% of the money for all the years to come.
David Peterson said:Interesting language....which seems to me to indicate that to have a lease is a better deal than to NOT have a lease...as 12.5% royalty is a pretty low royalty as I understand it. However, add in the cost of drilling, etc... and someone with more knowledge than me would have to figure this one out...
Thanks...
Mr. Volney, the actual law for ND on forced pooling is 38-08-08 and explains the risk penalty as being 50% of the actual cost of drilling and completing a well, this does not include surface equipment. Surface equipment and operating costs are dollar for dollar and from what I have seen operating costs are very low. There are bills to be paid, the low cost of operation, repairs can be costly per well but if you don't have that many acres in a 1280 they don't look much bigger than a car repair bill, best of all these aren't your bills until the well pays out and retires the penalty and you are receiving your 100%, if the well never pays out, you are out nothing out of pocket, since they can only recover from the production of your minerals. In ND if your well never paid out the operator could place a lien against the production of your minerals. I don't see the lien as a problem because if they couldn't get production with the first well, I don't see anyone being in a hurry to drill it again. When your well does pay out, retire the penalty and you receive 100%, you receive more than the operator does by the amount of royalty you do not have to pay. If you could not pay your bills with 20% to 25% more money than the operator is receiving, then I pity the operator. Another interesting item in the ND law is that anyone who has a working interest in a well can surrender it at any time to the operator and not be responsible for the wells bills from that point on, the person surrendering the working interest will also be paid salvage price for their share of the surface equipment. I may do this just before my wells are plugged. I am not as up on Montana non-consent law. Now for the good part, read the laws, they are in plain language, you may have to look up a few oil terms but it's not hard to understand. Once you've read the laws, think about how often you have heard non-consent being discussed, where someone actually knew what they were talking about. Either most landmen have not read the laws and or are unknowledgeble or they are not telling you how it actually is, they do have a interest in seeing people lease. To be fair though, they probably just don't know, it's no part of their business if you go non-consent, but I think some do know and are simply not truthful. Landmen are trying to do a job and that is get you leased, they don't even want you to know you have other options. I've heard that 85% of mineral owners sign the first lease they see and don't even try to negotiate, of course most won't go looking for a law they don't even know exists, to see what rights and responsibilities they will have if they don't sign the lease. I know of some people who learned the rules of non-consent late, they have really good property that would have paid off the well and penalty in 6 months but they signed leases for 15% royalty, and they tell everyone that you had better lease, because they traded some millions of dollars for a few hundred thousand royalty and bonus included and were representing their families interest also. If you go non-consent, get at least a fair well that pays out and retires the penalty in less than 5 years, I think they would feel that they had failed, and failed their relatives in the bargain also. They refuse to talk about non-consent except to say you had better sign a lease. I pity them. If I might suggest that you read the laws over a couple times then I would be glad to answer any questions that I can. Mr. Volney, I know the feeling about your post going poof. I have some cable line replacement work going on and any interuption in service and the post will not be sent, I'll be much happier whan they are finished.
Mr. Kennedy, Thank you so very much for your information and oppinions. I will read up on the law and am sure will have more questions, please let me take this oppertunity to express my gratitude for people like you on this forum who take the time to respond to people like me. Without knowledge, there is just a void that needs filled. And you do it well...................... Brian...
r w kennedy said:
Mr. Volney, the actual law for ND on forced pooling is 38-08-08 and explains the risk penalty as being 50% of the actual cost of drilling and completing a well, this does not include surface equipment. Surface equipment and operating costs are dollar for dollar and from what I have seen operating costs are very low. There are bills to be paid, the low cost of operation, repairs can be costly per well but if you don't have that many acres in a 1280 they don't look much bigger than a car repair bill, best of all these aren't your bills until the well pays out and retires the penalty and you are receiving your 100%, if the well never pays out, you are out nothing out of pocket, since they can only recover from the production of your minerals. In ND if your well never paid out the operator could place a lien against the production of your minerals. I don't see the lien as a problem because if they couldn't get production with the first well, I don't see anyone being in a hurry to drill it again. When your well does pay out, retire the penalty and you receive 100%, you receive more than the operator does by the amount of royalty you do not have to pay. If you could not pay your bills with 20% to 25% more money than the operator is receiving, then I pity the operator. Another interesting item in the ND law is that anyone who has a working interest in a well can surrender it at any time to the operator and not be responsible for the wells bills from that point on, the person surrendering the working interest will also be paid salvage price for their share of the surface equipment. I may do this just before my wells are plugged. I am not as up on Montana non-consent law. Now for the good part, read the laws, they are in plain language, you may have to look up a few oil terms but it's not hard to understand. Once you've read the laws, think about how often you have heard non-consent being discussed, where someone actually knew what they were talking about. Either most landmen have not read the laws and or are unknowledgeble or they are not telling you how it actually is, they do have a interest in seeing people lease. To be fair though, they probably just don't know, it's no part of their business if you go non-consent, but I think some do know and are simply not truthful. Landmen are trying to do a job and that is get you leased, they don't even want you to know you have other options. I've heard that 85% of mineral owners sign the first lease they see and don't even try to negotiate, of course most won't go looking for a law they don't even know exists, to see what rights and responsibilities they will have if they don't sign the lease. I know of some people who learned the rules of non-consent late, they have really good property that would have paid off the well and penalty in 6 months but they signed leases for 15% royalty, and they tell everyone that you had better lease, because they traded some millions of dollars for a few hundred thousand royalty and bonus included and were representing their families interest also. If you go non-consent, get at least a fair well that pays out and retires the penalty in less than 5 years, I think they would feel that they had failed, and failed their relatives in the bargain also. They refuse to talk about non-consent except to say you had better sign a lease. I pity them. If I might suggest that you read the laws over a couple times then I would be glad to answer any questions that I can. Mr. Volney, I know the feeling about your post going poof. I have some cable line replacement work going on and any interuption in service and the post will not be sent, I'll be much happier whan they are finished.