Bart: After our conversation on the phone this evening, I looked at the location of T32 R71 Sections 7 & 8. These Sections are not currently in a BLM Drilling Unit. But they are about 2 -3 miles West of the SW edge of the Smith Creek (Deep) Unit and a few miles South of the North Fetter (Deep) Unit. Both of those BLM units are very active for drilling by Chesapeake. Also it appears that quite a few old wells were drilled a few miles South of those Sections in years past. So someone must have thought this general area was worth exploring for oil in years past. From our conversation, my guess is that an oil company, maybe Chesapeake, is looking at this area. If there has been seismic work done in the area, that would tell you that some oil company is looking. If the companies that are contacting you are under contract to Chesapeake, that would show interest by them. If you know any land owners in your area, it would be good to talk to them and see what sort of activity they know about. I was in this same situation in 2009. 4 years later, there are wells drilled on our minerals and more being drilled. I wouldn't worry because there is no activity in this area today. You may be in or close to a new area of interest. The signs of oil company interest show up lowly and the fact that you are getting lease offers is a positive sign. It doesn't mean you are going to be rich soon, but it is a positive sign that some oil company is looking at this area for drilling in the future.
You ask about what the location descriptions mean. Township 32 North Range 71 West contains 36 Sections. Sections 7 & 8 are two of those sections and are located in the NW quarter of the Township. It appears there Section 8 is all fee minerals and Section 7 is mostly fee ownership ( private mineral ownership) with a little federal ownership but not much. You will need a more detailed description of your ownership which you can get from the Converse County Clerk. T32 R72 Section 2 is about 2-4 miles NW of the other parcels. The term Section 2, SW4/s and SW4 /e is not completely clear to me. I think it is pointing to mineral ownership in the SW 1/4 of Section 2 and is trying to identify specific 10 acre lots in the SW 1/4 of the section but I am not familiar with the exact terminology being used.
Good Luck to you. Lets hope this is the beginning of an interesting adventure for you.
John
Hi....
I own a small amount of minerals in Converse County where Chesapeake is drilling. I have been contacted to sell my minerals and I am trying to be smart about it and reading your comments has helped a lot.
I have some of my own research that I am doing online and my father-in-law was an upper level geologist for different companies during the 60's to the late 80s. He found a lot of oil back in the days when it was harder than it is now. And he has great old maps that he made, and he has explained them to me...obviously the geology hasn't changed, but horizontal wells and fracking have make it possible to get oil out of zones (especially the Niobrara) that you couldn't get in the old days with vertical wells. He is 85 years old and has his good days and bad days, and we call him Gramps. On a good day Gramps seems really bright and offers a lot of insight and even calls and talks to some of his old buddies (who are up there in age too but still track different angles on the Wyoming oil situation).
According to him this area is called the Southern End of the Powder River Basin and there are several potentially productive stratigraphic zones in layers of rock called the Cretaceous (an age of when the rock was deposited and it includes the Niobrara). The Niobrara has three/four different zones or benches that could all produce oil and gas. Unlike the Muddy sandstone or the Minnelusa, the Niobrara exists across a huge area (think of an ocean compared to a meandering stream).
Gramps says that a special type of seismic, called 3B seismic, helps to locate areas of the Niobrara that have a better chance to produce because they have what is called 'natural fracturing' (more spaces in the rock that can hold oil---I am still getting used to all these terms) and probably that is why Chesapeake chooses the drill sites they are drilling. He also warns that even thought the Niobrara formation is pretty consistent across the area, in terms of being present in Southern Converse County, you can still drill not 'dry holes,' but 'uneconomic wells' because there are little sweet spots here and there. These uneconomic wells might make some money in the first few months but they peter out fast and probably won't get other wells drilled around them even if other wells have been permitted next to the first well (called an exploratory well or wildcat). I am spending as much time on the Wyoming State OIl site (WOGCC--thank you Mr. Linden) to try to figure out: do I sell or keep? do I sell all or part? how much per acre can I get? who am I selling too???
Anybody got any ideas or experience that can help me? I will share my research as I get it. Pray for Gramps, eh? He's a good old guy and told me he used to spend time 'out in the field' even when he had an upper level management desk job in Denver as the 'exploration manager.' He liked to meet the surface owners, and he liked to treat them right (and I guess he had a few drinks with some of them!) because he grew up as what he describes as 'a dirt farmer.'
Many thanks to all...and btw, how do you feel about fracking???
Oh and btw...anybody know anything about this Chinese investor called CNOOC? or about a company called KKR/MAC???
Pamela, let me take a stab at your questions; CNOOC (sic?) is one of the largest Chinese Oil & Gas companies. Chesapeake sold them a piece of this so CHK could recover some of their costs. KKR is a large American investment firm.
Fracking is responsible for America increasing its oil & gas output for the first time in decades. Since it has been so successful the anti-fossil fuel folks have relentlessly attacked it. Fracking has been done for over a half century. It has been done on 100,000 wells. After all that time and activity there is not one case of it polluting the water aquifer. Though if you read the baseless claims against it you might think every fracked well pollutes the water. As the facts show it is being done responsibly and safely.
Only sell your minerals if you need the money. Then if you decide to sell don't just jump at an offer from an unsolicited letter. Instead seek competing bids and try to market them to the largest audience possible. Good Luck and give 'Grandpa' a hug for helping you out.
In 2102, a partnership between Chesapeake and KKR was announced. I have copied a bit of information from the 2012 press releases below in this text. It is my personal opinion that the offers we all are receiving to sell our minerals are backed by companies like this that know which minerals are likely to be valuable. The oil companies have the geologists and drilling experience. They know which parcels would likely yield a profit if purchased now before royalties are paid out. I don't think there is anything wrong in this. They are offering to provide a royalty owner with up front payments. They will buy a percentage of the minerals or all. This allows the royalty owner to cash out if they want money now or take some money off the table. But we should all be aware that the buyer probably knows more about the long range value of the minerals than the seller. So the mineral owner has choices: don't sell, wait to sell, or accept an offer. The Powder River Basin is in the early stages of development. There should be both risk and potential reward ahead. So if you are receiving offers from an agent or small company, ask yourself, how do they know which minerals to buy and how do they know how much to pay. My guess, and it is a guess, partnerships like the one described below may be involved in the selection of which minerals to buy and funding. Nothing wrong with that. Making sure you receive fair value for your minerals is the sellers job Be sure to know what the value of what you are selling is before you accept an offer.
KKR & Co. (KKR) and Chesapeake Energy Corp. (CHK), the second-largest U.S. natural-gas producer formed a $250 million partnership to buy mineral rights and royalties from owners of oil and gas properties.
About KKR:Founded in 1976 and led by Henry Kravis and George Roberts, KKR is a leading global investment firm with $59.0 billion in assets under management as of December 31, 2011. With offices around the world, KKR manages assets through a variety of investment funds and accounts covering multiple asset classes. KKR seeks to create value by bringing operational expertise to its portfolio companies and through active oversight and monitoring of its investments. KKR complements its investment expertise and strengthens interactions with investors through its client relationships and capital markets platform. KKR is publicly traded on the New York Stock Exchange (NYSE: KKR). For additional information, please visit KKR's website at www.kkr.com.
Hi and thanks to you Mr. Linden and Eastern Mt.
I have had a chance to research MAC and KKR. I had heard about Henry Kravis before, but as a corporate raider and New York billionaire not as a mineral buyer. I don't think I would sell my minerals to MAC even if I was desperate which I am not...it just gives me the creeps to think of someone like that buying our real property and having it end up being owned by foreigners or who knows who? Aren't there any buyers out there who are not from New York, Texas, or California...I'm not a bleeding heart liberal, but I saw this video and got really turned off, am I reacting wrong? http://www.flickfilosopher.com/2007/12/watch-it-henry-kravis-makes-51369-per-hour-you-pay-more-taxes.html
Also...I asked Gramps about this CNOOC deal and he knew about it. Chesapeake is actually not having to pay for these wells they are drilling. You can read some of the details from here (para. 10 & 11): http://press.ihs.com/press-release/energy-power/niobrara-not-yet-proven-resource-play-says-ihs-special-report The Chinese are paying for all of it and Chesapeake (CHK) is getting 'carried' meaning they don't have any money of their own in the drilling. I asked Gramps what this means and he says it means that the Chinese are the only ones at risk and that they are probably spending a billion dollars just to learn the drilling, fracking, and completing technology so they can take it back to their own country. He thinks that if CHK was spending their own money they might not be drilling all these wells and that they might stop drilling when the Chinese money runs out, leaving us high and dry. Here's more info on the deal: http://www.cnoocltd.com/encnoocltd/newszx/news/2011/1590.shtml
He told me to look at the results of some of the wells and see what it would really mean if I was getting royalty payments compared to if I sold the minerals (or part of them and kept part of them to 'roll the dice' with CHK) I will try to do this and let you know what I come up with. Has any body do this calculation?
Thanks!
Hi,
Fracking should not pose any kind of problem in Converse County. Back east and in Texas the oil companies are fracking at shallower depths in areas where hundreds of wells have been drilled before. Some of these wells are so old they don't even know where they are, and many of them were improperly 'plugged.' So a big frack job can leak through natural fracturing and go up through these old wells and into well water formations.
In Converse county there have not been that many wells drilled and the ones that were drilled mostly only started in the 1960's when well-plugging techniques were implemented so the well-water zones should be safe from 'communication' from the frack jobs. Also, the Niobrara formation is 11,500 feet deep, TWO MILES down, and the water well formations are much much shallower than that so they should be safe!
In terms of selling minerals, has anybody sold theirs? Does anybody know what is a good price per acre to consider? I have heard $5,000 to $6,000. Does that seem reasonable?
Thanks!
Pamela:
The $5,000 number has been offered to a number of mineral owners that I am aware of and I know one owner who sold for $6,000 / acre. So those numbers appear to be real and in one case there is money in the bank.
That said, you are asking if the offer is "reasonable". I'm sure the buyer thinks it is reasonable or they would not be offering that amount. But each situation is different. A similar price was offered to us when one well was drilled close to us. Soon there will be 3 wells completed. Is the price still reasonable? There is more area to drill. I'm hearing rumors of 2 more wells. All of our participation is partial. But it begins to add up. The sellers job is to determine what is reasonable. It isn't an easy task. But it may be very rewarding to the seller to understand the value of their minerals and this will involve understanding the importance of their location and plans for wells and of course add in a little luck. It is very difficult for anyone to tell you if the offer is reasonable without knowing a lot more about the drilling plans and potentially at least the initial the drilling results. At lease some of these drilling locations are going to have 4-6 wells drilled in an area. Some wells are in different formations and some in the same formations. If you follow permit activity on the Wyoming Oil & Gas site and look at the permit maps, you begin to see what is likely to happen. "Reasonable" is a very difficult question to answer for another person. There are many variables to consider. In some areas of Converse County, the oil companies have paid thousands of dollars per acre just to lease the land. In other areas, only hundreds of dollars per acre. Not all minerals have the same value. I realize this isn't making it easy to come up with an answer, but I would hate to say it is reasonable offer and later learn the minerals where part of the best, highest producing area in Converse County. One thing seems likely to me; offers like this that come early in the drilling cycle are likely to be a winner for the buyer. That is why we have been contacted by so many different brokers -- in my case 6 or 7.
Good Luck!
John
Pamela, everything John posted is correct. Though he doesn't really cover the flip side. Offers are coming freely because things are active and hot in portions of Converse Co.. Currently there are a dozen rigs and a hundred plus additional permitted locations. Though remember if they fail to hit quality wells those most of those permits will be allowed to expire and the play, and these purchase offers, will quickly fade away.
In general, most minerals will never produce oil. Will yours, or will mine? Since none of us have a crystal ball we're left to weigh the risk & reward. So if you were intending to sell I believe this is a very good time to consider it. Again in general terms $5,000 or $6,000 / acre may be too low if you're surrounded by wells producing 1,000 bbls/ day. Yet there have been few of those wells and $5,000 or $6,000 / acre on unproven ground (which includes most of the county) is a very high offer.
My standard advice is never sell mineral rights unless you really need the money and have no alternative. Holding them costs nothing but 'potential' lost opportunity cost, while keeping them provides you with potentially greater opportunity. Bottom line, IF you intend to sell today's prices are a good opportunity. Though always try to seek multiple offers, and only do it if you need to.
Thanks you guys,
I really appreciate your comments. I am going to need to think about this. I am kind of leaning towards selling part of my minerals and keeping the rest, but I am going to try to study the 'Production' page for the wells in the area. I have a well permitted on me and next to me but I don't know if they will ever get drilled and I might feel dumb if I don't sell while there is a pretty high offer. Even if they were drilling like on Mr. Linden, I'm not sure what I would do. I am going to try to study the WOGCC site and get some numbers crunched to help me figure out what to do. I got a letter that says if I sold now I would only have to pay 20% on that no matter what else my income is this year. Is that true? Long term capital gains tax? Anybody know about this?
Many thanks!
Pamala:
You state in your last posting " 20% on that no matter what else my income is this year"
For federal capital gains tax, the tax rate is a minimum of 15% up to a max rate of 20% depending upon the amount of income of the filer. In addition, beginning in 2013 there is a medicare tax depending upon income. If the taxpayers adjusted gross income is more than $125,000 for a single taxpayer or $250,000 for a married taxpayer filing jointly, there is a 3.8% tax on investment income above those levels. That includes both capital gains income and royalty income as I understand the law.
So if the payment for selling minerals is substantial and applicable to a single tax year, it is very possible the federal tax combining the maximum capital gains tax rate of 20% and the medicare tax of 3.8% on investment income will exceed 20% for most or all of the purchase payment. Any state income taxes on this investment income would be over and above the federal amount.
Unlike capital gains tax, royalty income is spread out over the years. You may or may not reach the medicare tax income limits with the royalty payments spread out. Therefore, royalty income may or may not be subject to the 3.8% medicare tax in any given year depending upon the taxpayers other income. In addition, the royalty income amount actually subject to federal income tax can be reduced by cost depletion of 15% of the gross amount received for the mineral royalty (This is the gross royalty income prior to paying the 6% Wyoming severance tax).
So again, the tax situation like the mineral value situation isn't simple. Each person has a different situation and you should probably consult with an tax expert if you expect substantial income either in one year or over time.
In my own case, I don't believe the deciding factor should be tax rates. I am interested in the amount of overall spendable income I will receive. Selling minerals to save on taxes could make sense --- if you are being paid enough for the value of your minerals. Tax rates are a contributing factor in the decision, but so is the price per acre. There are no simple answers in this situation. All the variables should to be considered. The problem is, as mineral owners, we don't know a lot about many of these variables because we don't have experience and if is difficult to do the research. But as time passes, we will all learn more and hopefully share that knowledge.
Good Luck!
John
Thanks John,
You are right. I am gong to look farther into the tax consequences, and see if I can get any more information about the 'overall spendable income' (good way to look at it) of selling minerals with a certain known quantity vs. possible royalty income. It seems like it just gets more and more complicated and there always ends up being risks either way.
I know a man who might be able to figure out the range of these Niobrara wells' productivity. Maybe I can average out the good wells vs bad wells and figure my actual royalty from an averaged well over time. Then, figure the taxes on royalties from an averaged well (including depletion) vs capital gains. I discarded the 3.8% because I think we have to pay that no matter what, right?
I also think that if I pay less tax on long term capital gains and get money up front, I can re-invest that now and get more profit than waiting for it to accumulate over 10 to 20 years, especially if I have to pay more taxes on it than on capitol gains (I would). So yes, it needs more research, but part of me thinks if I can get reasonable cash now taxed at a lower rate it would be better than making more cash in the future over a long time period (with all the risks that might go with that) and get taxed at a higher rate???
I'll keep you updated if I get this well information. I heard that these wells start off with really high production (because of the intense frack jobs) and then drop off so fast that they only make 10--20% after the first year. Anybody know about this?
Think I'm still leaning toward selling some and keeping some, because in the long run it feels like a roll of the dice either way and if I spread my risk I'll be less likely to kick myself 5 years from now. Do I sell 1/3 and keep 2/3 to see what the royalties might do...or do I sell 2/3 and keep 1/3? This is kind of what I'm thinking these days.
Pamela
Pamela:
In North Dakota, the development of their oil wells is 5- 8 years ahead of what we have in progress in Wyoming. Somewhere on the internet, I found a presentation about oil production in the Bakken. The average barrels of oil per day from the Bakken oil field included many wells -- I assume some real good wells and other not so good wells. The average number of barrels of oil per day wasn't that high over this large quantity of wells and over a multi-year timeline. I don't want to quote the figure I remember in this public forum because I might be wrong. But I used this information to feed the simple financial analysis I did for myself. I concluded the buyer of minerals planned to get their money back in about 5-6 years on average. This surprised me because I was expecting a lower number like 3-4 years. But as I said earlier, there are so many variables, that I doubt in the end whatever estimate I did will be accurate. But that information helped with the analysis. I'm sure that info about the Bakken is still out there to be viewed. Good Luck! John
Exploitation of the Niobrara has turned Converse County into a "HOT" area. Hot areas attract opportunists that will try to get as many mineral rights for as long as they can for as cheaply as they can. Opportunists will go to great lengths to minimize their investment and maximize their profits; its the capitalistic model. You can bet that they are well informed and educated and have little interest in "helping" the inherited mineral owner who didn't acquire his mineral rights through capitalistic endeavors.
If a mineral owner expects a fair trade, they too must educate themselves as to how the NEW oil business works before committing to a transaction. If the lessor/seller is not educated and experienced in the new oil business, in a Hot area, they are sure to lose in a transaction with one who is educated and experienced. Knowledge is Power.
If you inherited mineral rights, you owe it to your donor to take good care of the asset and maximize its benefits to you as was intended. Don't be a vehicle that transfers the benefits you were given to some one else for a few pieces of silver.
I advise inherited mineral owners and personally own minerals in the HOT areas including the Bakken System, the Niobrara, the Anadarko Basin, as well as other areas popular with developers. I've seen some unusual schemes to separate the inherited mineral owners from their mineral rights in those areas but none have been as subversive and objectionable as what I have seen in Converse County recently.
My geologic experience tells me that Converse County is more comparable to Weld and Morgan Counties in Colorado rather than the Bakken, (an entirely different geologic animal) and development wise, NE Colorado oil development of the Niobrara may be a few years ahead of the oil development of Converse County but the sophistication of separating inherited mineral rights from the owners at deep discounts in way ahead of NE Colorado.
I would advise inherited mineral owners to check out the postings in Weld County on MRF and read some of the applicable posts by RW Kennedy. He has learned the hard way through his analytical mind, how to protect what is his. Independent geologists and engineers familiar with the Niobrara can be helpful as well as mineral attorneys.
Most of all, educate yourselves so you can be on an even plane with opportunists. I've found that the legitimate buyers will make a fair deal to a seller if the seller knows what is best for him or her and knows the mineral value.
For what it's worth I will share a couple of instances I am aware of that make selling your minerals rights unwise - 1. When I have helped owners in leasing for oil and gas, I insist on retaining the rights to coalbed methane. In virtually all instances, coal rights were retained by the US federal government - however the mineral right owner owns the coal bed methane. In order to mine the coal, any company must first prepay for the loss of the methane - these payments can be sizeable. 2. I know of a case where a property near Douglas, Wyoming has oil and gas, plus it has a deposit of bentonite near the surface. My point is, beware of what you are selling, you may be literally giving away other valuable mineral deposits with the sale of your mineral rights. Prospective buyers may even have access to drilling records and know what they may be buying with disclosure to the seller. Buyers are always going to have a "plan" for a sizeable return. KNOW what you are truly giving up for "x" number of dollars today and weigh the benefits and unknown potential future royalties for ALL minerals you may truly own.
Just my opinion based on what I know. Hope it is helpful.
Mr. Proctor, Your opinion is way more than helpful. I hope Wyoming mineral owners will take heed. I'd confirm the bentonite story as I know the area and the coal bed methane situations can be very beneficial to the owner if they are conscious of the possibilities.
Gary L Hutchinson
We have a lease with Chesapeake in Converse County we were receiving royalty checks for about 6 months and then they stopped. Does this really mean this is it?
Jackie:
There are a number of reasons royalty payments can stop. There are a couple that happened to us that are likely to happen fairly often because of pad drilling in Converse County. So I will go over what happened to us.
It happened in June 2013. Most of the drilling going on in Converse County is from drilling pads where 2 to 6 wells are drilled in the same location. There was a producing well on the pad above our minerals that was drilled and completed in late 2012. We had been receiving royalty payments beginning in Feb 2013 for about 3 months. Then we got a shut-in notice from CHK and royalty payments stopped. The shut-in notice was required by our lease and I'm not sure CHK is required to do this by all leases they have signed. Over the next 4 months, CHK drilled two more wells on this pad location. To do that, they had to shut in the existing well that was producing ( I think for safety reasons because the well locations are so close together) . The original well went back into production Feb 1, 2014. So that well was out of production for 7 1/2 months.
The two new wells have not begun production. I was a bit surprised, so I asked CHK and received a response that there is currently not enough gas process capacity in the area. So they said the 2 new wells would not be completed until later in 2014 when increased gas processing capacity would be available.
So in our case, there were two different reasons for wells not to produce 1) Drilling new wells on the same pad 2) not enough gas processing capacity. I think many royalty owners will run into these same issues in Converse County.
I suggest you contact the Chesapeake Royalty Owners Call Center (877)245-1427. They should be able to tell you why your royalty payments have stopped. But if they don't know the reason, they can contact the CHK production dept or the local Wyoming CHK staff and get an answer. I have found them helpful in getting answers to my questions.
Good Luck!
John Linden
Alamo, CA
I have been given the same info as John posted, by Chesapeake and by the midstream processing people. In addition, during one shut-in period, I was told the shut-in was for re-working the well - not sure what that means and the Chesapeake field rep seemed to not know details either.
Hello,
I've been contacted by someone who is asking me to sign a document regarding the correct name used in the sale of homestead property in 1948. The person who obtained the homestead property in 1921 was my great grandmother and she owned 4 different properties through the Homestead claim in Converse, WY. The location I’ve been contacted about is TWP 37N, Range 71W, Sect 12. She sold her 4 properties to the same person/company in 1948 who still owns it today. I've learned that they are looking to drill for oil/gas on this property. In checking the other lots she sold in 1948 I have found that they are already drilling on Twp 37 N, Range 70W, Section 5 and no one needed my signature at that time verifying her correct use of her name.
My question is who owns the mineral rights on the Homesteaded property? After it is sold do the mineral rights go with the property if the words “mineral rights” were never used in the sale deed? The words used in the sale deed were “ released/waive all rights under the virtue of the homestead exemption Law” but it doesn't specifically mention mineral rights. In trying to understand the mineral right issues I’ve also read that on Homesteaded property that the mineral rights could be owned by the USA.
Does anyone know anything about the Mineral rights on Homesteaded property that has been sold?
Thank you
Jackie
Jackie, minerals rights pass on to the buyer of the surface unless they are specifically reserved by the seller within the deed (or were previously deeded apart from the surface). Also, the USA did reserve some, or in other cases all, minerals when granting homesteads. In both cases you'd need to read the recorded deeds (or USA Patent) to see what if anything was reserved by the USA or your Great Grandmother.