Armstrong Corporation leasing - West Dickinson

#1

I have been contacted to lease my mineral rights sec: 6 twn: 139 rng: 96W. I was told by the man I spoke to that they are leasing all the mineral rights in the area. I contacted the man who owns the surface rights and he told me they are looking for the Lodgepole formation. There are several wells on the property that are dry or have canceled permits, whatever that means. I recently read a local article saying that new fracturing techniques have dry wells producing more oil. I would like to know what others are leasing for or what is the value of the land?

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#2

Nicole, there is already a producing vertical well in the NE quarter of the section. It has been producing sporadically since January 2011 with the last production being in March this year from what I can see. The well is a Lodgepole. Spacing looks like North half of section 6 minus Lots 1,2,3 but it also says to see the spacing order.

A half section sounds like a lot of acreage for a well that only produces oil, maybe the original spacing has already been changed in anticipation of a short lateral drilled from the existing well or a new well to be drilled.

I wouldn't expect great results but you never know.

Now then, I don't know what strategy I would advise not knowing how many acres you have. I would want an absolutely no deductions other than taxes clause in the lease. If you had to pay for trucking your part of the oil it could eat your royalty alive and this well may be uneconomic to connect to a pipeline. If the operator/lessee can't absorb the transport costs, I would rather they didn't drill and hold my acres for 15-20 years with a really poor well.

I would be flexible on bonus and royalty but not on deductions [over which you have no control and they can say whatever they want or use their own transport company and charge what they want] because the object is to make money and you will find that hard to do if each of your barrels of oil only net $10 a barrel, possibly less...while the operator gets a rebate and makes $25 per barrel off of his oil.

I would want price to be set at the first 3rd party transaction. You don't want the operator/lessee to be selling your oil to himself and paying you a low price, for the same reason you don't want deductions. I would be flexible on royalty and bonus but if I didn't get my stipulations in the lease, I wouldn't want them to drill.

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#3

They are looking to hit more of the Lodgepole formation. I have an offer to lease, and an offer to sell. I'm confilcted over what to do. Is this Lodepole thing as big a deal as they say? I mean if the one well they have is only producing on and off and not that much, then it doesn't seem to be making any money? The surface owner tells me he has a well on his land that is only producing 2-3 barrels a month and the area is now unleasable, so he's actually losing money on it. I haven't looked to see this for myself.

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#4

Nicole, if I recall correctly the existing well has only produced about 4,000 barrels. The problem is that it's hard to tell from the outside whether the well is typical. The operator was not a "name" I recognized. Sometimes they miss it by feet. Someone obviously thinks they can do it better. Someone wanting to buy from you thinks they can do it better. I don't have a clue what kind of offers you are receiving for lease or sale. All I can tell you is that if you lease, protect your upside as I mentioned above. Don't let them charge you to death or sell your oil to themselves.

Technology keeps advancing. Just because they might not be able to drill a profitable well today doesn't mean they will be unable to drill a profitable well 10 years from now. I have a few really poor wells in some great areas that I wish had never been drilled. It's not good to be the guinea pig. Sometimes you have to make a decision based on less information than you wish. I wouldn't sell my minerals unless they were offering what was to me a significant amount of money, unless I only had an acre. If you only had an acre, I might advise you to sell it and avoid the headaches of leasing all together, depending on the offer. All depends on the situation.

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closed #5
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