We were recently offered a 5 year lease by an outfit called Bakken Energy LLC. The offer includes several choices for the amount per acre in which the higher amount we accept per acre, the less we recieve in royalties. There offer is $350 per acre for an 18% royalty, each $25 dollar increase to the per acre amount reduces the royalties by a percentage and maxes out at $450 dollars an acre. I have tried to google the company as well as the contact and cannot find anything. I have emailed the contact with no response yet, and have called the contacts number, which just continues to ring with no voice mail option. This seems suspicious to me, what do you think?
Alan
Alan:
Check with the Montana Secretery of State's office to see if they are registered with them to do business in the State of Montana.
Dennis,
Thanks for the response, I will check.
Alan, you need to trust whomever you deal with. Although I've heard of this outfit before, it is a red flag if you can't reach them. Perhaps they're short staffed... or perhaps they're intentionally hard to contact. I believe they are a very small outfit blocking up minerals to speculate on the play. I don't have a problem with that, though some folks do. However, bottom line is, if you can't trust them just forget their offer.
As to the terms of the offer; adjusting a bonus vs the royalty is a common approach. Though that is an interesting way to structure their offer with a set sliding schedule like you described. For a mineral owner, typically it's fair to trade off some bonus for higher royalty. Though the value of minerals really is a matter of location, location, location. So I'd like to know where your minerals are (Township & Range) before offering any opinion on the merits of their $350 to $450.
Alan, I would say apply the logic going the other way. If you took $100 per acre bonus, and the royalty would be 10 X the $25 increment higher than 18%, what would your royalty be then ?
At this point I'm very skeptical. This is all new to me and I'm trying to educate myself so I can my a informed decision. I recieved a phone call from my uncle informing me of the renewed interest in Danials County and that he had recieved a lease proposal from this company stating this is the a standard used in the industry. I did call the Montana Secretary of State's office to see if this company was registered to do business in the state and was informed there was not. There is a company called Bakken Energy Co. and a Bakken Energy Partners, but not the one listed in my original post. I was also told to call the Department of Natural Resources, which I did, and left a message to return my call.
I have been reading all the posts on this site, as well as my uncle, and have learned a great deal thanks to experienced and knowledgeable people like yourselves. At this point my uncle and I are very suspicious of this outfit and are trying to make sure a good decision. I do like the idea of insisting we get either a cashiers check or a company check with the and place the signed lease in escrow with lawyer at a bank prior to releasing the signed lease.
Our area in Daniels County is Township 35 North, Range 45 East. Thanks again for the responses, it is very much appreciated.
Alan
... just proof read my reply, forgive my punctuation errors.
As it turns out the number I was given for Bakken Energy LLC was incorrect. I have been exchanging emails with the company and just spoke with the rep today. He has been very forthright with information and do feel very confident with there intentions and the process.
Just keep in mind they are not registered to do business in MT so it doesn't really matter what they are telling you. You should ask them why they are not registered. Also ask if they plan on drilling, have a partner NOW that will be drilling, are leasing for a client, are leasing to flip. Ask if they have ever drilled anywhere else. if they plan on drilling in your area as if they have applied for a permit and if not why not? But again, seems to me they would need to be registered - but keep in mind being a registered business in MT doesn't make them legit. They could be a shell, flippers or legit. Take your time, be thorough.
reason I don't like flippers is that your minerals just get tied up as they shop their holdings and of course a flippers intent is to make money simply by amassing a large holding - so they buy low and try to sell high to a producer; so when possible selling to the producer is preferred (in my opinion).
Wilson
Alan Lien said:
As it turns out the number I was given for Bakken Energy LLC was incorrect. I have been exchanging emails with the company and just spoke with the rep today. He has been very forthright with information and do feel very confident with there intentions and the process.
Wilson,
All very good points to consider. I was told they are working with Bakken Oil LLC.
Alan
After reading through all the posts would be wise to insist we keep the signed lease in escrow at a bank and only provide them with a copy, to allow for title searches, until 100% of the funds come through?
Alan, Yes!
"RULE # 1" for mineral owners is never deliver a signed lease until payment is in hand.
This can be done in a variety of ways; Bank Draft (held by & delivered via your bank), Escrowed with an attorney, Cashier's Check, Company Check, or even a face to face exchange if you're each in the same area. While many Lessees encourage you to just send them the signed lease in advance, every reputable one will agree to "Rule #1" if you insist. If they won't I would not do business with them.
Alan Lien said:
After reading through all the posts would be wise to insist we keep the signed lease in escrow at a bank and only provide them with a copy, to allow for title searches, until 100% of the funds come through?
Could I include a time line in the lease for receiving full payment on a Bank Draft while the signed lease is in escrow, i.e. 10 days, 30 days, etc. or the lease is voided.
Alan,
Bank Drafts typically have a time limit. You want it as short as possible. Lessors like it as looooong as possible (45, 60 or 90 days). So agree in advance to a specificed number of days. The other important point is to clarify if these are "calendar" or "banking/business" days. That distinction makes a big difference.
They'll probably say no, yet start by asking for 7 calendar days. Then try for 14, or 21 days. For Daniels County I'd insist they pay within 30 calendar days at maximum. Though there really is no standard or 'magic' number.
What is "reasonable" depends upon how advanced the play is. In a true wildcat setting, or where a courthouse is over run with landmen, the Lessee may actually need more time to confirm your ownership. You just want to ensure you get paid, and that you're not left hanging for an unduly long period of time wondering if that will happen. Good Luck.
Thanks again Eastern MT,
I don't want to get to demanding and loose the lease offer, just want to protect the family in negotiating the lease as well at the end of the term. I find your advice to be spot on and thank you for your responses.
Alan,
Sounds like you have the right attitude. A lease and subsequent development can be beneficial for both parties. It's in your interest to get your minerals leased where they can then be in play. On the other side the oil company needs your minerals if they hope to find any oil.
By its very nature the leasing process is an adversarial one. The landman or leasing broker is not working for you. You want to secure the best deal possible, they want to secure the best deal possible for their client. Yet it need not be a confrontational process either. You're not trying to fight the Lessee, you are simply involved in negotiation to find solutions which satisfy each side. So hold out for the best terms possible yet also know when to bend a little to get the deal done. Glad to help. Hope your deal goes well.
I have asked this multiple times, but who is Bakken Energy, LLC? I cannot seem to find much on this company and no one seems to know. I cannot imagine signing a lease with them if they will not tell me who they are. However, I still have not signed with Shale and I am open to hear from these other companies leasing. I just get a bad feeling about them because they quite frankly seem to be hiding information about who they are. All I find is something about an office in Arlington, Texas- big surprise!
Him/They are a leasing agent for Bakken Oil LLC, a larger land services company.