My wife inherited some small interest in above mentioned tract. Got an offer to lease her interest for some Yeso wells, pretty shallow. Small upfront payment plus a 25% royalty on production. Also an offer to be part of a bigger Working Interest Unit. Don’t know if either is a good offer. Any comments?
I should add some details. Upfront payment is $1,000 per acre plus royalty for lease option. The Working Interest option is for three wells. Well cost is estimated as roughly $4mil per well. Depths range between 2100 and 3000 ft. Looking at some other posts it seems this general area has been productive.
Working interest options are not generally for the new mineral owner. It requires deep pockets for this generation and possibly generations to come, excellent knowledge of the oil and gas business, a good tax/oil & gas attorney, a good accountant and the ability to lose every penny!
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Thanks for your comments. It is certainly not for the faint of heart!
What section in 19S 25E?
“offer to be part of bigger Working Interest Unit” is, I would guess, the notice that you are going to be force pooled by the operator. At that point, they have to offer you a lease offer along with an AFE to participate. As an individual, it’s far far easier to lease. IMO, you don’t want to be a working interest owner as an individual. Just think about insurance, etc. A lot of leases up there have been 3/16ths royalty so getting 25% is good. You will make your money off the royalty not the bonus, so I’d just take the 25% royalty and call it good.
The upside of getting “pooled” is that it tends to indicate that somebody is going to drill a well.
We have a few small interests in 19S 25E, some of our Yeso wells have been good. Others less so.
Surface location is Section 6, bottom hole, Section 7. E/2 of section 7.
Thanks for the insight. Seems to be a good area from what I can tell.
Based on input from this forum, leasing seems the right choice.
One more wrinkle. The offer to participate in drilling covers 320 acres but the lease offer covers only 80 acres. One way to look at it is our ownership is only in the 80 acres. Another is the operator who knows the geology and seismic info is trying to minimize our take. Should I go for participation in the whole 320 acres. I’d get a smaller % but have more chance of some royalty. Any thoughts from the old hands?
This is because your minerals are in the 80 acres and the well or unit is going to be pooling 320 acres. Your interest either way will be reduced due to it being a pooled horizontal well. The question is do you want to participate, lease, or be force pooled non consent.
My advice would be to take the lease before they ban drilling on Federal Lands!