I was just sent by Sinclair an Oil & Gas lease offer T146N, R-97W, Section 19 Dunn County ND and need some advice from the wonderful people on this forum.
I inherited this years ago and found out last year that a producing oil well (Porcupine 1-19H) Little Knife was on this site for over 3 years. I contacted Sinclair and provided proof that I owned it and they were nice enough to send me the back royalties even though the will was not probated in North Dakota at that time. Since then the will was probated the end of last year in ND and I provided Sinclair with copies of the ND Probate and Deed update.
I did not have a lease with Sinclair so I was getting paid a non_consent 16% royalty is my guess. Now they just sent me this lease to sign today. I own Gross Acres: 648.80 Net Acres: 4.9984 (NMA). The terms of the offer are 3 Years (HBP), Bonus Consideration $500/Acre x NMA $2499.25, Royalty Interest: 3/16ths = 18.75%
QUESTIONS:
1- Why is Sinclair sending me a 3 year Lease and Bonus Offer at this time if their is a producing oil well that I am being paid on (16% non-consent)?
2- Is 18.75% royalty and $500/Acre Bonus the going rates?
I would think 20% Royalty and a much higher bonus on a producing well?
Point of Information:
My understanding is that this first well was drilled as a test well and their may be future plans to put more wells on the site. Their are issues on selling the gas produced from the well I was told.
Good luck at getting 20% royalty, particularly with oil prices as low as they are. I signed a lease agreement 7 years ago with Continental & that's the royalty % I got at the time. Oil companies are pulling rigs out, or drilling wells & not fracking them, waiting for oil prices to come back up. It's in their best interest as well as yours to keep the oil in the ground rather than sell it at the discounted rate of around $36/barrel. The Bonus consideration is a bit low, but considering what's been going on in the oil industry & with oil prices it's probably fair. I currently live in San Antonio Texas & we have the Eagle Ford Shale formation about 70 miles South of here. Everything that's seen going on in the Bakken is going on there now. With the price of oil way down,small, independent oil producers are probably going to fold, or cut their losses & move out.
Bruce, read this very carefully:
Explain risk penalty provision.
Under NDCC 38-08-08 working interest owners (“lessees”) can be assessed a 200% penalty out of proceeds from production of the pooled spacing unit if they choose not to participate in the cost and risk of drilling and completion. However, mineral owners who choose not to lease are provided a cost free royalty equal to the weighted average royalty in the spacing unit agreed to by all those who leased their minerals. The remaining interest of mineral interest owners who choose not to lease is a working interest in the well and can be assessed a 50% penalty out of proceeds from production of the pooled spacing unit if they choose not to participate in the cost and risk of drilling and completion. In either case the paying owner(s) must make an unsuccessful good-faith attempt to lease the minerals or get the working interest to participate. They must also provide proper notice of intent to impose the risk penalty and inform the non-participating parties that they can oppose the penalty before the Industrial Commission.
And your well:
NDIC File No: 19269 API No: 33-025-01139-00-00 CTB No: 119269
Well Type: OG Well Status: A Status Date: 6/1/2011 Wellbore type: Horizontal
Location: SESW 19-146-97 Footages: 550 FSL 1990 FWL Latitude: 47.445566 Longitude: -103.090748
Current Operator: SINCLAIR OIL AND GAS COMPANY
Current Well Name: PORCUPINE 1-19H
Elevation(s): 2212 KB 2198 GR 2198 GL Total Depth: 20262 Field: LITTLE KNIFE
Spud Date(s): 10/5/2010
Casing String(s): 9.625" 3114' 7" 11103'
Completion Data
Pool: BAKKEN Perfs: 11103-20262 Comp: 6/1/2011 Status: AL Date: 7/21/2012 Spacing: 2SEC
Cumulative Production Data
Pool: BAKKEN Cum Oil: 142066 Cum MCF Gas: 180443 Cum Water: 106388
Production Test Data
IP Test Date: 9/8/2011 Pool: BAKKEN IP Oil: 410 IP MCF: 488 IP Water: 337
Bruce - don't sign - don't do anything.
Lars
Hi I guess I do not understand why Lars Spatzek advised me not to sign the lease. Sinclair just offered me this same lease again. I found out that they have 2 permits filed to drill 2 more well on my location but they have not done anything as of yet. They have been designated as Confidential Wells but no release date on the confidential status.
Why is it a bad thing to sign the lease?? Right now I am Pooled with no lease. Can I not put a clause in the lease that Sinclair would pay the assessed 200% penalty that Lars is referring to?
Bruce - you can be assessed the 50% penalty, not the 200%. When the well has produced 150% (break-even + 50%), then you would receive the full amount.
The new wells has not been spud.
Lars
Correct the new wells have not been spud to the research I have done so far. Why do people sign leases then? Sinclair did not say anything about the 200% disclosure in the lease they sent me. Can I ask them to take the responsibility of the 200% in the lease if they want me to sign? If they did would it be safe to sign the lease?