Hi all!
I've been reading like a madman. Some very informative posts here, and I thank you for all of them.
The background
From maps I can see several wells in the area of 21-159N-96W. I own a portion of the SW4 of the section as the mineral rights are divided amongst several relatives through survivorship.
Looking at the pubic portion of the GIS oil and gas well site I can see that the1280 acre boundary unit is held with section 16. My ownership is small but I'm wanting to maximize my return. I could go non-consent. I really can't participate but at the same time I could definitely use a cash infusion. Weighing all the options in my mind.
In looking at the land on the GIS maps, a portion of the land 1/4 to 1/3 of the area is under water (ponds) although I don't know if it's year round so I'm not sure if the state has title to the land under the water but that probably doesn't matter, just that Mr Kennedy seems to like depressions.
What I do know is that my boundary (drill) unit is undrilled as far as I can tell, yet there seem to be many wells around me. Two adjacent drill units have 9 wells each 3 miles to the NE. Although I may not be reading the GIS maps correctly it looks like there are many vertical pool wells about 4 miles to the East.
My question
I've been offered $2k/NMA through Glacier Land Services, LLC. What do you think the going rate in this area should be, and if I go non-consent what might be the long term pay out per NMA based on adjacent wells?
I have several other relatives looking to me as I am fairly detail oriented. I really do appreciate your time spent in my education. I've learned a lot already but have so much more to learn. Thank you!
Mark, your area is good but I don't think it's a sweet spot. Northeast of you Continental drilled 6 wells in a spacing and got a something over 300,000 barrels of oil in about a year, which is nothing to sneeze at but not fantastically productive. I did not do an in-depth search but I believe those wells are probably sand fracks with no ceramic propant, drilled to a price point, not all out efforts to gain as much production as possible. XTO has drilled some better wells near you, the thing is, you don't have enough land to pick the operator and have no input over which type of well, or how many wells you are going to get. I believe that you could be ahead in the long haul going non-consent but it's going to be as much as 10 years down the road. There are many different possibilities that could improve and or protect your upside, negotiating an agreement to only lease half of your net acres being only one of them. That would give you an infusion of cash, probably 7/8ths as much royalty as anyone else in the spacing got, make the spacing somewhat more palatable to the operator to drill. Or you could lease all of it and invest the bonus, in possibly a publicly traded pipeline company which is doing booming business. Think outside the box.
It's very difficult to get exact numbers and you will need to do an estimate taking into account several variables. Wells cost between $7M to $12M depending on who the operator is and the location. Here is an example:
I don't know how many mineral acres you own but lets assume 40, which means your interest is about 3%. So your share in the well will be somewhere between $210K and$360K. There is a 50% penalty for non consent so your expenses are now $315K to $540K.
When the well produces 140,000 bbls your share will be 4200 bbls. Let's assume it sells for $85/bbl your 4200 bbls will give you $357K gross; minus ND tax 11.5% (production 5%, extraction 6.5%) you will now have $316K to cover the cost of the less expensive scenario well. For the more expensive well cost you will need 240,000 bbls. You will also have to cover the wells operating expenses, so you production will have to be even higher.
The well just to the south (#19766) has only produced 49,676 bbls in 30 months, which averages 1655 bbls/month. If your well produced like this your share would be ~50 bbls/month. So for the 30 months, this equates to 1500bbls at $85/bbl of $127,500 - tax or ~$113K. At that rate it would take about 3 years to pay off the drilling expenses of the cheaper well and 5 years for the more expensive well scenario (plus operating expenses). FYI the well directly east (#18125) has produced 63267 in 36 months or ~1750bbls/month. These aren't big producers and each one has a different operator.
$2K/acre isn't bad, I just leased a couple of months ago for $1500/month....what % royalty will the give you?...I received 20%. I'm west of you about 20 miles.
You should do some calculations of your own taking into consideration your royalty percentage and number of mineral acres (i.e. this is your well percentage if you lease and would be on the division order).
Just my thoughts.
Thank you both for your responses. Truly I'm not a player in this game but wishful. I received a 20% royalty offer so it looks like this is probably a fair deal for the property in question.
In a leasing scenario if I understand this right, using well log data for well #18125 @ $85/bbl:
1750bbls/mo * $85bbl = $148,750 / 1280 (drill unit) = $116.21/acre.
The royalty portion of that is 20% so the net payout would be $23.24 per NMA.
Is that correct thinking?
RMS, unless that is your sole source of income, I would not expect to keep more than 70% of that after taxes.
Agreed on that Mr Kennedy. Providing that a producer puts a well in, is the example per NMA correct though?
It also depends on the lease, and if you are being charged post production costs. People are shocked at how little they realise from leasing their minerals unless they have alot of net mineral acres. Yes I would say that the numbers are substantially correct.
Thanks - I thought I was on the right rack logically but I certainly don't know the industry. I appreciate your input.
Actually the correct callculation for lease payment is (your mineral acres/1280 * 0.20. You would then take this decimal amount times the oil sold minus state taxes.
For example, if you have 40 mineral acres your percentage of each well will be: 40/1280*.020 = .0063. So for 1750 bbls it would be: 1750 *0.0063 * $85 = $937.13 - 11.5% (taxes) = $829.36
r m strand said:
Thank you both for your responses. Truly I'm not a player in this game but wishful. I received a 20% royalty offer so it looks like this is probably a fair deal for the property in question.
In a leasing scenario if I understand this right, using well log data for well #18125 @ $85/bbl:
1750bbls/mo * $85bbl = $148,750 / 1280 (drill unit) = $116.21/acre.
The royalty portion of that is 20% so the net payout would be $23.24 per NMA.
Is that correct thinking?