I have a tiny (.43333) acreage that is in the Bakken Oil Field of ND. Hess sent over a lease: 20% royalty, Pugh Clause added but no budging on Post Production Deductions. Is going ‘non consent’ really that big of nightmare as far as taxes go? It is likely that multiple wells will be on the pad. Clearly the lease is the best option for the Oil Company. I like the idea of getting the 16% royalty off the bat and then after years of payoff… getting my 100% interest back. I spoke to a lawyer and he along with his comrades said that I should go with ‘No Consent’. Any thoughts?
@disco77, welcome to the forum. Whether going non-consent is a nightmare somewhat depends on your age/income situation and what you would consider a nightmare. Non-consent/working interest income is usually reported on 1099-NEC, and is reportable as earned income and may be subject to SE (self employment tax). This can affect some benefits that have earned income limits. Until, the risk penalty is paid off, you would be receiving reduced royalty at possibly a higher tax rate.
How long this continues is not easily predictable and the information to track it is not easily available or transparent. Also, you, or your heirs, may inherit end of well costs and plugging expenses. Some people make out well after the risk penalty is over, and some report long term negative income bills. If you don’t like post production expenses, non-consent has these plus regular production and pre-production costs. Hope this information is helpful.
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Thanks for the response, Peter. I realize it is a bit of a gamble to go non-consent so I appreciate your honest surmisation. Shawn