My Father in Law owns aproximately 6 acres of mineral rights in Mckenzie County, over the past three years a company has been attempting to purchase them from him each year increasing their offer by $1,000. They are currently at $6,000 an acre. He is concerned if he does not sell the offers will stop and they will drill and he will be left in the cold. I dont believe this is an oil company making these offers and ignorant about the laws or practices in dealing with mineral rights. Is there anyplace I can find out this basic info before he makes a decision without knowing his rights. Thanks!
Mr Anderson, you are in the right place, a fortune of knowledge is to be found here in these forums. It is common for a company (not usually a oil company) to locate who owns the minerals and put down a low-ball offer to buy minerals, seems like they are persistent but not willing to go for market value. If he does nothing and drilling happens, he would not be left out in the cold. Many options are available to him prior to drilling. If you could list the township and range and sections we are talking about, it would be helpful to determine what value he has. In an outright purchase (which I would personally never do) the price of 6,000.00 still seems quite low. Time is on your side. Brian...
Kevin, there could already be a well, the operator doesn't necessarily find everyone and send them a lease. Your father in law could have $3,000 per acre coming to him right now in royalty, or more, which if he sold, that's likely to go to the buyer. I was just offered $10,000 per acre in T-149 R-96 section 4 that has a single mediocre well in it. You might find out what it's actually worth, find out if there is already royalty building up and become the best son-in-law ever. It could have 6 wells on it right now. Let me know if you need help looking it up.
His is located on 29-150-98 I noticed there was several abandoned wells in that section but didn’t see any active ones. I’m not sure what portion his rights are located.
Kevin, when I look I see alot of wells legging from section 32 into section 29 which would make them your father in laws wells too. Please tell me you are not looking on ESER. Eser's information can be years out of date. Adding the wells drilled from section 29 to 32 and vice versa plus the two wells just spud (commenced drilling) by my count you have about 7 wells in a very good area. I will post this and gather some more info for you.
Kevin, you’ll be hearing more complete answers to your question, but rest easy. The State os NDak tells oil companies where they can drill, normally in one or two section units. Selling one’s oil rights is one option. There are three others: lease the rights for a fixed amount per acre, such as $1000 or $2000, and then receive something like 20% of your proportional share of the oil which comes from the well. These numbers depend upon the deal which you negotiate with the oil company. For my oil rights in McKenzie County I was offered $2000 per mineral rights acre, and 20% of my share of the oil in the 2 section drilling unit. I declined the offer. The second option is to neither sell the mineral rights, nor lease them. If you choose this second option, you will be deemed a non-consent owner. The key here is that your proportional share of the oil is still yours, and you will receive revenue from it. I’ll leave it to others to explain how much. The key thing is that your share of the oil doesn’t go away, and you will be paid for it, with your proportional share of the drilling costs, plus a penalty. Your costs come out of your share of whatever oil is produced. You are never out any out of pocket money if you choose this option. The third option is to be an active participant in the costs of drilling the well. This can in reality cost you a sizable amount of dollars up front, but if the well is a good well, you make much more money over the long haul. I strongly suggest you read prior entries in this forum to help you in your decision. The key point is that your ownership of your share of the oil does NOT go away if you don’t sell your mineral rights. The use of ‘your’ in my comments, of course, are aimed at your father-in-law. You’ll probably be receiving some solid information from r w Kennedy. It would be of help to know what section the mineral rights are in.
Kevin, XTO is the operator,
150-98-32
file # 20012 SORENSON 32-34NWH 131,447 BBL OIL in 21 months
FILE# 22832 GV 44-32NEH 57,049 BBL OIL in 6 months
FILE# 22833 GV 44-32NH 15,116 BBL OIL in 5 months
150-98-29
FILE# 23655 HEGG 11-29SWH DRL STATUS probably awaiting fracking
FILE# 23656 HEGG 11-29SH 1,323 BBL OIL first month
FILE# 23412 HEGG 21-29SEH "SPUD"
FILE# 23413 HEGG 21-29SH "SPUD"
Alot of new work going on and I wouldn't expect alot of production from the new wells until this round of work is completed but I would expect them to be good producers because that is a great area. XTO would not be spending that much money if they did not expect a very healthy return.
There you go, you are officially the best son in law ever. At least to your father in law.
You can collect royalty on the roughly 200,000 bbl oil produced now, and I wouldn't ant to sell considering the new wells coming on.
Awsome, so where does he go from here, is there someone he needs to contact....I am very grateful for this info, he was ready to sell this coming Monday.
Kevin, there is no hurry unless you are in great need of the cash, you have time to study.
You could demand that XTO pay you 16% royalty as a non-consent owner,
you could negotiate a lease for a bonus of a few thousand dollars per acre and 20% royalty on your proportionate share from first production.
I would suggest you consider non-consent because after the well pays for itself and the 50% of actual cost of drilling and completing risk penalty, you would receive 100% less the actual cost of production, you would receive 16% royalty up to that point and never pay anything out of pocket until you become a full working interest receiving your 100%. You actually make more than the operator per acre because you don't have to pay anyone a royalty. I suggest reading NDCC 38-08-08, several times. If you decide non-consent, the operator will most likely offer to lease you even after, because they don't make alot of money if they can't lease you. I suggest you do some keyword searches on non-consent here. I don't want to flame anyone but I run into alot of landmen who do not know the law, rules and regulations on being non-consent in ND, the reason is because if you go non-consent, they are one step closer to being out of a job. I invite you to read the law yourself and confirm what I say. I have no stake in whatever you choose, I just want that choice to be an informed one. Take a month and think it over, you have time.
Kevin Anderson said:
Awsome, so where does he go from here, is there someone he needs to contact....I am very grateful for this info, he was ready to sell this coming Monday.
Mr. Kenedy, I made an error the section is 150-29-96, so maybe I'm not the best son in law
It's ok Kevin, I will look again. Mckenzie county is so massively drilled, it might be about the same.
Kevin, not as immediately exciting, I know because I own in that same spacing, there is the Kermit 1-32H that was drilled in early 2008 by Continental Resources who almost immediately sold it to Burlington Resources [Conoco]. It was the early days, they didn't know how to complete a well as they do it today, so the Kermit looks pretty mediocre for it's 113,795 bbls oil in 5 years. If Continental had known then what they know now, they would have never sold that well. Only the Kermit's well bore is in section 29, but that makes it your well. The Kermit's production has already paid for the well, so in the case of the Kermit I would participate, if I were in your father-in-law's position, you would hand them a check and they hand you a bigger check. That is a much better area than the Kermit would indicate. If you look just to the north you can see where ABRAXAS Perroleum is drilling 6 or seven wells and leaving room for several more. The area is at least as good as that for which I was just offered $10,000 per acre, just as good as the area I gave such in depth information on, it just hasn't been exploited to that extent yet.
If you don't absolutely have to have the money you could just stay quiet, the money will keep building and one day when they decide to drill 6 to 12 modern wells there, if you wanted to sell, you could sell a working interest in multiple wells that might be worth $25k to $50k per acre at that time.
I would not want to be non-consent in a well that has already paid for itself 130% to 150% or more like the Kermit, why pay a risk penalty after all when you don't have to, I would scrape u the money to participate or work a deal with someone else. You could be non-consent in future wells. There are alot more options out there than just lease or sell, there is more than one kind of lease and there are many different ways to sell. Depending on what your F-I-L does he could get the price for a new car, make enough for a fairly nice house or even make a nice retirement nestegg out of this. He needs to study, take his time or make haste slowly and make the most of it.
If a byer offered $36,000 for 6 acres there, they could lease for more than $2k per acre, possibly $3k or more. Then there is the royalty that has already accrued, some few thousands of dollars, the buyer could get half of what he paid for the acres back within a month, so they are really offering $3k per acre for all the profit for the next 30-40-50 years, doesn't sound fair to me.
Kevin, This horizontal well was drilled May 2008. Your father in law should have been getting royalty long ago. I'd suggest he check to be certain of a clear title, as they can hold royalty if it isn't precise or awaiting probate.
In the section 20 just to the north of 29, there is a lot of activity, some wells and a rig on site at the bottom of the section to drill what appears 2 more wells. Your father in law's acreage, regardless of it being just 6 mineral acres, is worth far more than the scab is offering to him.
NDIC File No: 16792 API No: 33-053-02820-00-00 CTB No: 116792
Well Type: OG Well Status: A Status Date: 5/21/2008 Wellbore type: Horizontal
Location: SWSE 32-150-96 Footages: 500 FSL 1455 FEL Latitude: 47.762277 Longitude: -102.989539
Current Operator: BURLINGTON RESOURCES OIL & GAS COMPANY LP
Current Well Name: KERMIT 1-32H
Elevation(s): 2415 KB 2415 GL Total Depth: 20250 Field: PERSHING
Spud Date(s): 3/25/2008
Casing String(s): 9.625" 1932' 7" 11258'
Completion Data
Pool: BAKKEN Perfs: 11258-20250 Comp: 5/21/2008 Status: AL Date: 7/18/2012 Spacing: 2SEC
Cumulative Production Data
Pool: BAKKEN Cum Oil: 113795 Cum MCF Gas: 163530 Cum Water: 18449
Production Test Data
IP Test Date: 5/29/2008 Pool: BAKKEN IP Oil: 689 IP MCF: 533 IP Water: 365
Thanks I believe with all you have told me he will most likely not sell. You have been extremely helpful in your input. I will keep looking into this more and do more research. Thank you very much.