Our family has been paid for a lease on 120 acres in Township 158 Range 102 Sec 11that is due to expire. The company that has been leasing has not drilled but is offering a new lease at the same cost of $400 but with a little better royalty. However they say they are leaving the area so we are confused on several points. Does it make sense to renew with a company that indicates they may not drill? Is this a good amount to accept again - we thought it would rise after several years? How do we find other companies in the area that may also want to offer us a lease and how do we contact them? Any help would be appreciated.
Amy,
You are safer to let the lease expire and be free to deal with a new player later. You will take great risk by granting a new and perhaps one-sided lease now knowing that the operator with the permit to drill your section is not hanging around. Definitely do not take a bank draft under the circumstances.
We just negotiated a new lease with diamond resources for $500 / acre 20% royalty on a 3 yr lease in your area. based on my inquiries, most companies are pulling out of that area, at least for the time being....doesn't mean they wont be back. Diamond represent Continental...a large exploration company
The well drilled in section 28 is doing about 60 barrels a day, after a year/ 1600 bbl a month with a pump on it. The well in section 9 much closer to you is doing alot better 8 months in with no pump and still doing 5,543 bbl in January. The next well to to east is a little too new to judge but it IP'D at 548 bbl which usually is not bad.
I don't think I would abandon the area if I were an operator. I would be trying to reproduce what I got in section 9. None of these are monster wells but wells I wouldn't expect to do any better are still being drilled. I would consider $400 an acre too low unless they are offering 20% royalty and even then I would want more. G3 looks like they have been the only game in town in that area, if they really are leaving, Continental or someone else will probably fill the vacuum because the area just doesn't look bad.
Permits don't mean a great deal usually, but there is still a permit to drill your spacing and there is a rig right under it drilling a well for the 14-23 spacing and they could scoot the rig over a few feet and start drilling you a well in a few days from the same pad. I suggest you start thinking about your lease being held if they can get your well spudded in time. That does not mean you should sign the lease. If you sign the lease and they start a well before the old one expires they are not going to pay you the bonus or give you the better royalty rate, the well would be under the old lease.
If you don't lease and they drill a well after the old lease expires, that does not mean that you can't still lease it to them.
The landman telling you they are abandoning the area while they are presently drilling a well right next to your spacing sounds like salesmanship to me. I think they are looking for a protective lease in case they can't spud a well in time. I think if they were wanting to lease you to assign it to someone else later they would not have offered you a higher royalty. Just my opinion but I think they want a lease to protect their leasehold under the well if they are late getting it spud.
I don't think there is anything in signing what they are offering you right now. They are probably going to delay payment until they see if they can get a well spud under the old lease.
The one exception is if you made a new lease that supercedes and voids the old lease, so you would be entitled to the lease bonus and higher royalty % even if they could get the well spud in the primary term of the old lease, otherwise, there is no hurry to lease. Good luck with your minerals and your decision.
I was working on my reply while the others gave theirs, I think you will be able to see where they dovetail together nicely.
Amy, sounds like we are in the same boat. T157 R103 S15 , 160 acres and my lease (G-3-Halcon) is expiring shortly. The landman made the same offer $400. 20%. I don’t quite know what to. I got $500 three years ago. I know the bonus is not the most important thing to consider, but 20% of nothing is nothing if they don’t drill. As always, I appreciate any and all thoughts.
I am Amy cousin and she has just stared with this oil and mineral rights This is 480 acres and they also have the right to lease it for 2 more years under the old contract with a payment but offered a new contract 3 years with the right for 2 more years but up the market value oh the well. This is in township 158 NORTH RANGE 102 WEST 5TH PM SECTION 11 AND SECTION 12 So also wondering if the other mineral right owners around it what are they doing. Thanks Rose
Deborah we are in the same boat maybe if we all know about this we might be able to pick up another company that would work with us that is going to drill thanks let us know Rose
Deborah Haug said:
Amy, sounds like we are in the same boat. T157 R103 S15 , 160 acres and my lease (G-3-Halcon) is expiring shortly. The landman made the same offer $400. 20%. I don't quite know what to. I got $500 three years ago. I know the bonus is not the most important thing to consider, but 20% of nothing is nothing if they don't drill.
As always, I appreciate any and all thoughts.
I am Amy cousin and she has just stared with this oil and mineral rights This is 480 acres and they also have the right to lease it for 2 more years under the old contract with a payment but offered a new contract 3 years with the right for 2 more years but up the market value oh the well. This is in township 158 NORTH RANGE 102 WEST 5TH PM SECTION 11 AND SECTION 12 So also wondering if the other mineral right owners around it what are they doing. Thanks Rose
r w kennedy said:
The well drilled in section 28 is doing about 60 barrels a day, after a year/ 1600 bbl a month with a pump on it. The well in section 9 much closer to you is doing alot better 8 months in with no pump and still doing 5,543 bbl in January. The next well to to east is a little too new to judge but it IP'D at 548 bbl which usually is not bad.
I don't think I would abandon the area if I were an operator. I would be trying to reproduce what I got in section 9. None of these are monster wells but wells I wouldn't expect to do any better are still being drilled. I would consider $400 an acre too low unless they are offering 20% royalty and even then I would want more. G3 looks like they have been the only game in town in that area, if they really are leaving, Continental or someone else will probably fill the vacuum because the area just doesn't look bad.
Permits don't mean a great deal usually, but there is still a permit to drill your spacing and there is a rig right under it drilling a well for the 14-23 spacing and they could scoot the rig over a few feet and start drilling you a well in a few days from the same pad. I suggest you start thinking about your lease being held if they can get your well spudded in time. That does not mean you should sign the lease. If you sign the lease and they start a well before the old one expires they are not going to pay you the bonus or give you the better royalty rate, the well would be under the old lease.
If you don't lease and they drill a well after the old lease expires, that does not mean that you can't still lease it to them.
The landman telling you they are abandoning the area while they are presently drilling a well right next to your spacing sounds like salesmanship to me. I think they are looking for a protective lease in case they can't spud a well in time. I think if they were wanting to lease you to assign it to someone else later they would not have offered you a higher royalty. Just my opinion but I think they want a lease to protect their leasehold under the well if they are late getting it spud.
I don't think there is anything in signing what they are offering you right now. They are probably going to delay payment until they see if they can get a well spud under the old lease.
The one exception is if you made a new lease that supercedes and voids the old lease, so you would be entitled to the lease bonus and higher royalty % even if they could get the well spud in the primary term of the old lease, otherwise, there is no hurry to lease. Good luck with your minerals and your decision.
I was working on my reply while the others gave theirs, I think you will be able to see where they dovetail together nicely.
As cousin Rose stated, our family actually has 480 acres. Thanks for your replies and I believe we will move in the direction of finding a professional to work with us. Any additional suggestions would be appreciated.
Amy, knowing that you have 480 acres does not change my opinion that $400 per acre is cheap for the bonus but does bring up another consideration for comment. 20% royalty from 480 acres even with a mediocre well could be substantial, could overwhelm in time the low bonus. I have in the past said that I would lease for no bonus and 33% royalty because I am patient enough to not take the bribe to agree to a lower royalty. That is what the bonus is, a bribe usually 1% to 3% or less of what the lessee/operator expects to make from your oil. For 1% to 3% or less, up front, you agree that the lessee gets 80%. It might cost the lessee 20% to drill and operate the well [reasonable number, in a better area the well and operation might only add up to 10% of the gross] and the operator may have 60% remaining after costs.
You are in the Bakken, there is production around you, a well drilling right now south of your spacing in fact. The operator usually insists on the lions share because they are putting up the front money, including the BRIBE, and usually there is some risk that oil will not be discovered. There is oil under you or you have the only land in the area where there isn't oil, not likely.
One of my lawyers has described oil companies as 5 year olds, if you don't allow the game to be extremely in their favor, they COULD take their marbles, go home, and not play. If you have 480 acres, you could refuse to lease, take your marbles home and not play. The operator will not drill and carry your force pooled interest if you decide not to lease because you could end up with literally half the money. The operator needs a constant supply of acres or they go out of business. There are alot of acres still available in western ND. The oil under your acres was there 1,000 years ago and if nobody extracts it, it will be there in another 1,000 years. Another operator could be along within a year or possibly not for 30 years. The oil is there, the companies know it's there and they will not forget. Technology marches on, if the industry figures out how to improve ultimate return by 25% to 5% or more, I think there will be a new rush to tie down every possible acre. I myself have half a dozen wells drilled 5 years ago that are only half as ptoductive as wells drilled last year in the same area. 5 years can make a world of difference. I think $400 and 20% if it included no deductions for post production costs would be a real offer to consider. I stipulate with no post production costs, because if the operator charged you for absolutely everything post production, 20% wouldn't look as good. I would check the lease carefully on the point of post production charges.
You are sitting at the table, it's your decision when to cash out and just become a spectator. Make certain that the deal you accept is one that you and your heirs find equitable because I think if you are leased and get a well that the lease will be sustained for 70 years or more and I think it unlikely that your minerals will be returned to you until there is no more value to be had from them. An important decision but be of good cheer, there should be money coming, right now the discussion is how much.
Amy Lawson said:
As cousin Rose stated, our family actually has 480 acres. Thanks for your replies and I believe we will move in the direction of finding a professional to work with us. Any additional suggestions would be appreciated.
Good point Larry. Parcel 7 sounds nice. I also remember when they used to say that the state got so much for their leases because the state accepted 1/6 royalty, that's not true anymore.
If you think about it logically if the average acre bonus is $4,000, thats from the middle, a $400 bonus should put you in the bottom 5% on the scale of desirability. If it were true, why would they still want your acres at all? It's because it's not true, while the acres the OP has to lease are not the best, may not even be considered by me to be good when you factor in an inefficient 10,000 ft lateral that will have poor production after the natural pressure is gone which will hapen quickly (I think they would be much better with 5,000 ft laterals), that does not mean they won't recover costs and turn a profit.
The only likely explanation I have for the low offers is lack of competition. There are too many acres in the merely profitable range and the operators can pick and choose. That the operator is talking to you means that they would prefer yours over someone elses, the question is how much?
Non-consent and carried interest is not for everyone, for one thing, no operator in his right mind is going to want to carry 480 acres out of 1280 and allow you the equivalent of 50% royalty or more on 480 acres, they will drill somewhere else, up to about 40 acres I might expect them to grind their teeth and go ahead and drill but 200 to 480 acres? No way.
In their opinion it isn't your oil anyway, you were just the one sitting on top of it when they came by, nevermind that you or your family probably had opportinities to sell it and could probably have used the money but you held on to it because it had value to you, and they can't figure out why you don't want to sell it for less than 1% of what they think it's worth. After all, it's useless to you without them, isn't it? The difference is that without acres to drill a producing company is going to die. People sitting in an office with nothing to do and equipment sitting in the yard rusting generates no income, they will dry up and blow away in time with no acres to drill. Your oil on the other hand was there 1,000 years ago and if nobody extracts it, will be just as good as it ever was 1,000 years from now. Your problem at this moment in time is that there are more acres available than are good for you. I don't think the bubble has burst but I think it has deflated somewhat. You have to remember that we are years away from having a well holding every spacing in the Bakken and Three Forks and companies are already looking at drilling the Red River formation in areas that have proven to have poor Bakken potential. It's nice to be wanted and appreciated but now that the operators know what to expect, the lease everything that doesn't move fast enough to get away operations seem to have come to an end.
Larry Wagenman said:
I'm not sure where this $19,350/acre was paid, but don't be in a hurry to lease, whether you have a small % in that acreage or 100 %-
Do you wish you had minerals in parcel 7?
http://www.blm.gov/pgdata/etc/medialib/blm/mt/blm_programs/energy/o...
Robert , and also Jody Kuntz [email protected] , will explain the long term benefits of being unleased and of actually being in the oil business.
I wish this technology http://www.youtube.com/watch?feature=player_embedded&v=VY34PQUiwOQ
had come along back when we were being seismographed by all those outfits.
Robert,
The $19,150/acre seems to be on BLM land ,so someone knows something.
The situation where they have already drilled and a bad lease has them in a spot where mineral owners can reject the 'fair lease' offer and elect to be in the oil business with them, due to their foulup, must arise sometimes.
Larry,
The parcel you're referring to lies in 151-92-24.
Neighbors won't be leasing for small change!
The well has been there since 8-2011, cumulative production 187,236 100,440 mcf gas. Section 24 is totally under water. The production is good, almost as good as my Dunn county acreage, where they acted like they were doing me a favor to offer me $3,000 per acre bonus, which I of course declined. They still tell me I can lease if I feel like it. I tell them I'll think about it,LOL.
J. Wolberg said:
Larry,
The parcel you're referring to lies in 151-92-24.
Larry, Mr. Wolberg identified the parcel as being 151-92 section 24 and I just checked the production, which was excellent, and I compared it to my acreage that the production was just slightly better on and for which the lease offer was alot less than $19,000.
I think operators can hurt themselves by not getting off their back pockets when warranted. Back then, I might have leased my acres for $10,000 per.
My friend Andrew Babcock probably would have leased his acres for $10,000 per, because that was what he was asking, his well was better than the $19,000 per acre well also.
If the operator wants to do themselves out of money, over pay for public land, and then try to be cheap with mineral owners, I say let them.
Larry, your acres may be slightly less great than in 151-92-24, but they are still great in their own right. I think if they had offered you $10,000 per acre to lease, we may have never met.
I believe that operators know that you have to spend money to make money, but I also think they hold us mineral owners in contempt and consider money too fine a thing to waste on mineral owners, much better spent on jet aircraft leases for executives and expense accounts.
Am I confused that we are referring to a recent BLM high bid for $19,950/acre on 1 of their tracts?
Highest Bid Per Acre:$19,950.00,(Parcel 7) seems to have been leased after it was producing!
I'm not sure where this $19,950/acre was paid, but don't be in a hurry to lease, whether you have a small % in that acreage or 100 %-
Do you wish you had minerals in parcel 7?
http://www.blm.gov/pgdata/etc/medialib/blm/mt/blm_programs/energy/o...
Robert , and also Jody Kuntz [email protected] , will explain the long term benefits of being unleased and of actually being in the oil business.
I wish this technology http://www.youtube.com/watch?feature=player_embedded&v=VY34PQUiwOQ
had come along back when we were being seismographed by all those outfits.
Larry, I don't know if it has been resolved but the state was claiming sections in the rivers and lakes while others thought they owned them. If I were the operator who drilled a great well on land that I mistakenly thoight I had leased, I might calculate how much it was worth TO ME and make sure I had the high bid.
We are in the same situation on our lease. Wondering what happens if we let it expire and then they decide to drill and we no longer have a lease with them? There are 25 cousins who are involved in this lease, 480 acres, we all signed our lease different dates, does each lease expire on the date that each of us signed?
Gary L. Hutchinson said:
Amy,
You are safer to let the lease expire and be free to deal with a new player later. You will take great risk by granting a new and perhaps one-sided lease now knowing that the operator with the permit to drill your section is not hanging around. Definitely do not take a bank draft under the circumstances.
Gary L Hutchinson
Minerals Management
If all the leasors understand the benefit of going non consent and make use of the 'risk penalty' option so they are all actually in the oil/gas business, like Mr.Kennedy and Jody Kuntz are, it will benefit posterity for as long as production continues, so its good to avail yourself of their counsel, especially whether your immediate kin can do this without all the others being involved.