Offer to Sign Lease

North Dakota Mineral Rights McKenzie County, ND
1

I am wondering if anyone out there has received a similar lease offer for mineral acres located in the same Township/Range/Section in McKenzie County ND? Is this a decent lease offer?

On 12/12/2022 we received an lease offer from Hal C Smith & Associates LLC indicating that Energy Lease Account LLC is offering the following lease terms to our mineral interest in McKenzie County North Dakota - Township 146 North, Range 98 West Section 10: SE1/4, NW1/4 7.7000 NMA

Option#1 $400 per NMA for a (5) year lease providing for a 1/6ths royalty Option#2 $300 per NMA for a (5) year lease providing a 3/16ths royalty

We are currently receiving royalties from Continental Resources for nearby drilling on one well (Pojorlie 21-2-1-H) in Section 11 but the average amount being received is only $50/month. Does anyone have input they could provide on possible new exploration/drilling in Section 10?

Thank you in advance for any information/input you can provide.

2

There appears to be continuing interest in that section. Quite a few earlier leases have been extended for several more years. Personally, I would not do a lease longer than three years and would ask for 1/5th instead of 3/16ths.

Continental had a Bakken horizontal well planned a while back, but the permit was cancelled. The Bakken is still sitting there, so that might be the upcoming plan.

This would be a good time to get an attorney to look at the draft lease if you can find one that does not have a conflict of interest. Most draft leases are not in the mineral owner’s favor.

3

I’ve also been contacted about a lease, by the same people, in the same area.

4

Thanks for the input. Is the $300 per net mineral acre a fair bonus amount? If not what would be a fair one?

They did not actually send a draft lease. The one page document indicate a place for me to choose either Offer #1 or Offer#2 and a place to sign, date and provide contact information. The letter indicates that they will then forward lease papers. How would you suggest I counteroffer, by mail or call them?

5

I ignore the letters. I would counter back and say that you never lease for more than three years and ask what they are offering for a 1/5th lease.

6

Agreed. Don’t ever sign one of those letters without nailing down the other important terms. They’ll string you along forever and/or try to impose obnoxious contract terms later.

I have a small interest in a nearby section, but have not received any communication.

7

The 1/5th will be an even smaller bonus amount since the royalty is higher. The bonus is insignificant compared to the ultimate royalties from successful well(s). The clauses in the lease are the most important items to consider. Legal help would be advisable because the draft lease will not be in your favor. The five year term is a red flag for me. That is probably not from an operator that is planning to drill in the near future. I will not lease for that long. Too much can happen just in a year, so five is just too long.

8

We hired an attorney, with lease experience, and prioritized the higher royalty countering with a 1/5th royalty and a 3-year/2-year extension lease. That was a hard no. They countered with a higher bonus ($500) and indicated that the 3-year lease was a no go, had to be 5. We were able to get the royalty up to 19%, figuring that we wanted the highest royalty we could get.

The last time we leased these MRs was 2012 for a 3-year/2-year extension, 3/16ths and $900. Oil was well-over $100 a barrel at that time.

9

It looks like you made some progress. Congrats.

I usually respond to hard no, with my own hard no.

I have also become much more picky about who I’ll lease with as some of these people are more trouble than they are worth.

1 Like
10

. . . . and what about other clauses like charging the owner for transportation and processing costs, or clauses extending the lease for events like - can’t get workers to work or bad weather or . . .

11

North Dakota leases usually have the more operator friendly clauses about post production charges, savings clauses, etc. Really helps to get a good attorney work through those and get as many as possible changed.

12

I’m hearing a lot of generalities here, but does anyone know what leases are actually going for in this area?

13

In 146N-97W, 3 years and 20% leases are transacted for a few thousand per acre

14

That looks to be on the east side if hwy 85. What are they going for to the west by the grasslands?

15

I tried to find some information on the entity (Energy Lease Account LLC) that that they indicated was currently acquiring oil & gases leases and didn’t find anything which makes me suspicious.

16

You mentioned in an earlier post that you had received an offer to lease from the same people. Are you indicating that you ended up signing a lease in the same area as mine with Energy Lease Account LLC for 5 years at 19% & a $500 bonus?

17

I recently contact the attorney I have worked with in North Dakota about this lease offer asking if he could assist me. He indicated that over the years we have generally adopted the policy of making no recommendation related to financial offers for mineral lease or sales. We can offer information to our clients who are considering these proposals but we are generally not qualified to advise clients as to whether or not the offers should be accepted or rejected. What we have found is that if there has been a recommendation to accept a proposal, and then if the clients found out that their neighbor received a better offer, they were then upset with our advice. On the other hand, if there has been an offer to lease minerals and we had recommended to wait for a better offer, sometimes these companies then pull out of an area and there are then no offers to lease and the clients would be upset about that advice. Accordingly we refrain from offering advice as to whether an offer should be accepted or rejected but will, hopefully, give you some information that will help you in your decision.

As to the offer to lease from Hal Smith, from the website of the ND Oil & Gas Commission there are no new permits for drilling in that township. There are only 6 producing wells in that township. Although this shows there has not been a lot of interest in this area in the past we do not know if some company might have plans for drilling in the immediate future. The State leases its minerals by auction and the last minerals leased by the State in this township sold for a little more than $500 per acre for a 5 year term lease with a 3/16ths royalty.

For years the standard in our area was a lease with a 3 year term. Recently there has been little competition for leases so the companies have been going back to 5 year term leases but the length of the lease is usually negotiable.

The two offers differ as to the royalty. During the boom, most companies offered royalties of between 3/16ths (18.75%) and 1/5 (20.0%). If there is ever drilling on this property, the larger royalty will pay for itself many times over considering production will usually last for several years.

Usually companies do not make their last and best offer up front. If you are interested in leasing you might negotiate with them on the key provisions as to the term, the royalty, and the bonus payment.

19

I have a contract ready to sign with those terms.

20

Have you heard anything more on your offer? I’d be curious to hear how it goes.

21

No I do not plan to respond back to them because I plan on transferring the current ownership of the mineral acres hopefully sometime during the 1st quarter of 2023. 75% of the current ownership will be held & managed in a new family LLC, while the other 25% ownership will per deeded into the personal names of the remaining beneficiaries.

I did recently get an offer to buy the mineral acres that included those in Section 10 but do not plan to respond.