Reeves County, Texas Hello - Just curious of the advantages or disadvantages of being a mineral owner in a tract where everyone else involved in the tract is leased — the oil company is going to drill — I have been notified — they are not willing to give me market value — so I have no intention of leasing — can this be to my advantage? Also looking for unleased owners to talk to them about their experience as an unleased co-tenant dealing with the oil companies
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Skip, Many threads on this topic in the past. You might want to try the search feature in the upper right.
Do plenty of due diligence. With that said, I think there may be two basic scenarios:
Your share of production will be 4x what it would have been with a 25% royalty lease but only after the well pays out–IF it pays out. This would require no capital outlay on your part, only waiting, watching, and hoping.
You participate in the well to the extent your mineral ownership allows, e.g., if you have a 1/8 interest, you would invest, for example, one million dollars in an eight million dollar well, but you would immediately receive returns when oil and gas sales begin without waiting for the well to pay out. You would also have to pay your share of well maintenance; cost of producing, etc.
You can also form a “joint operating agreement” with the non-operator and choose to go “non-consent” on the well; however, you will likely be subject to a penalty, such as not receiving any revenue until the well pays out 2-3x. This can reduce your risk up front if the well doesn’t produce much oil and gas because you have invested no capital, but if the well is a gusher you will have lost out on some gains. You don’t have to go with the JOA and instead can be be governed by the laws of co-tenancy, but some operators won’t develop the minerals without a JOA depending on the size of the unleased interest.
Just curious, what lease bonus and terms did they offer that you don’t consider market value?
Thanks for your input Wade - we miss you!
Thanks AJ11 – Any clues on Due Diligence? I do know this is very important
Thanks for the input BP1 - JOA without finding out more about it might not be for me – The O&G that will drill the well offered $6,000.00 NMA and 25% Royalty a year ago — about two months ago they offered $5,500.00 NMA and 22.5% Royalty (seriously) — They have already poured the pad as I’ve been told - The area as I’ve been told by landmen currently reap $10,000.00 to $15,000.00 NMA
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You’re welcome, Skip. With due diligence, I wanted you to understand that I am not an expert. Perhaps other forum members have experience in this. Hope you have a good attorney well-versed in oil and gas law. I have a friend who speaks highly of National Association of Royalty Owners but have no idea if your issue could be addressed.
Thanks BP1 -
I have been offered between $10,000.00 AND $15,000.00 PER NMA by a different O & G that is really not in the area - also other offers - also purchase offers - so why did the O & G that has the area sewn up only offer so little — Actually go down in price — HMMM?
THANKS FOR YOUR INPUT
Skip
Skip, who notified you that the well was being drilled and how were you notified? Are you dealing directly with the operator or through a broker? If you received notice from the Railroad Commission, you may be looking at a Rule 37 application. If that’s the case, just be sure and respond to the RRC before the deadline & the offer will likely get higher as most operators don’t want to deal with an extended hearing process.
I’d think long and hard about participating as a non-operated working interest owner. Even with the benefit of a JOA, if you’ve established a contentious relationship with the operator from the get-go, there’s nothing that would prevent them from drowning you with AFE’s (invoices) for your share of multiple wells at a time. Your share of one well may only be $1,000, but if they drop 4 AFE’s on you at the same time, you’re going to have to come up with the cash ASAP or else end up in “non-consent” purgatory.
Participating in a well isn’t ordinarily something single-interest mineral owners want to do. The operator has ALL of the power, they don’t want you as a partner, and if you’re having problems with them before the production even starts, it’s highly unlikely that the relationship is going to improve moving forward. If I were you, I’d try and cut a deal. You can probably negotiate marginally better lease terms if this moves towards a Rule 37 hearing, but I hope you’re lawyered-up because you’ll likely need a good one.
Thanks for your input Reluctant M – I had heard from a friend who is a landman in the area that the O & G poured a pad - Also got a call the other day from an unknown landman who said I should be expecting a letter from the Railroad Commission very shortly on being an unleased co-tenant (he was checking my address also) – kinda think maybe he was working for the O & G – I would be willing to possibly work a deal with them but they don’t seem to want to – arrogant corporate attitude – Seems They want to put the screws to us
Tough call. Most Horizontal Wells in Reeves County will not reach a 3X payout status. That said, good wolfcamp wells can payout in 10 months to 2 years but will have depleted by 60-80%. I do not believe that you are required to sign the JOA. If not mistaken the law in texas states that you can back-in as WI partner after 1X payout. If the JOA reflects this- than it may be worth signing as it provides a clear, legal path once you are vested with WI. If you can provide me the location of your minerals and what you think you might own within the unit, I could work up a quick decline curve/cash flow to let you know where you might stand from a monetary perspective.