Dunn County Mineral Rights

Several years ago I inherited mineral rights to 160 gross acres, 80 net mineral acres at

35-141N-95W. The asset has been under lease to Oxy USA with the present lease to expire in February 2015. Oxy has a couple of good producing wells about 1 mile away, one with a horizontal line heading right toward my section line suggesting to me that there is oil there. As my lease termination date approaches I'd like to insure that my lease doesn't just get stock piled with no active drilling for the next five years. How does one determine what a current fair price for a mineral rights lease should be? Until now I've just waited for the oil company to offer me something without knowing if I'm giving it away. How does one require a leaseholder to drill? Would other companies currently drilling in Dunn County be interested in taking a lease or am I stuck with Oxy? And finally, what if I just choose not to lease at all? Wouldn't I get a bigger piece of the financial pie when drilling in the area finally takes place? Seems to me like a five year lease just gives Oxy five more years to do nothing while still controlling the oil.

Dennis, there are some fair wells near you, not great but I think they are profitable. Hess also has a well completed March 2013 just south and west of you. I think no matter which operator drilled it you would get a cheap well, one that would leave technically recoverable oil in the ground. Just enough well to hold the acreage in the spacing and pay for it, it may be a decade or more before they come back to drill another. I think you are going to be partly on the shelf no matter what you do. I believe the well they would drill for you, cheap, would not be really attractive to be non-consent in but leasing would not be attractive either. If you leased I doubt the bonus and royalty from a cheap well would be really attractive when considering future prospects because when you lease and they drill, your only option is to keep or sell out.

I don't have 80 acres all in one spacing. I think it's easier for me with 15 acres here and there to ask myself, is this what we held onto these minerals for 102 years for? I have also always been a fan of keeping my options open as far as I can. In your situation, I can see where the operator plans to benefit greatly in the future and would like to have dominion over the production of your oil from now on. They want to get in on the ground floor cheap. I would not want to cooperate with that plan because it doesn't look enough like it were in my best interest, or in your particular case, your heirs because it's going to be a long time before they want to do anything but hold. If they came to me with a lease offer and I actually needed that money, not just wanted but needed, I would be asking about what kind of well they were intending to drill. We know it's going to be an XXL long lateral Bakken, but I would want to make sure my earnings from it would be reasonable, why else would I lease? The bonus bribe of about 1% of my oils value? Did we just hold those minerals for 100 years for 1% and a royalty from a well that by design was never intended to be the best it could be and leave recoverable oil in the ground? Is that really in you and your heirs best interests?

If they are not going to make their best attemp to get the most production, I wouldn't want to lease and help them with their plan to hold with minimal production against my best interests and the interests of my heirs. I would not lease. If I were to put myself in the shoes of someone inclined or who really needs to lease, I would start negotiations on how many frack stages my well is going to have, how much ceramic propant is going to be used because the royalty from production is where the greater part of my pay is going to be and I need some assurance that I will receive a reasonable amount from the well. If they put in writing that it would be at least 30 frack stages and use no less than 50% ceramic propant, not the dreaded sand frack where the weak sand gets crushed and does as much to clog the fractures as it does to prop them open. If they are just going to sand frack, I'd just as soon not participate in their shoestring program and take my 16% statutory and hang onto my options for the future. Of course, no operator is going to like that.

When you think about it, the well getting drilled is the largest consideration you receive when leasing. The bonus is a bribe so they can delay on having to deliver the most important consideration, the well itself. When they drill a poor well, you have been shall we say. "spiralled" out of much of the most important consideration you would receive from leasing. In that case I would just want to take my non-consent 16% statutory royalty, it's not like you will get so much more from leasing with a poor well and maybe a decade or two down the line you, or your heirs may be able to make something out of it,but not if you lease and they get production.

The oil has been there a long time and sometimes it's a matter of not yet time.

Personally I have 5 wells that I did not want drilled from 2007 to 2009 with 10 frack stages with sand frack. There have been no more wells in those spacings, 1 well per spacing, since although the wells have paid for themselves and drilling is occouring all around those spacings, wells that produce twice as much oil in 2 years as my wells have produced in 5. I know whereof I speak on the evils of sand frack and being on the shelf with minimal production with no end in sight. A bonus and a couple percent more royalty would not really make things look alot brighter, but being the eternal optimist that I am, my heirs may be able to benefit greatly if given the option. I say if given the option, because a land company committed fraud and tried to go around my brother and I because we would not lease and set up an unlocatable mineral owner trust. It is so valuable that they couldn't let us keep 31 net mineral acres. I sent off the signed work agreement to the lawyer this morning. You have leases on record so you should not need to worry about it, but trust nobody in oil and gas who stands to make a profit off of you.

When your lease expires this Feb, dont renew the lease. Instead do some research and do a working interest.
If you lease for 20% what happens to the other 80% of YOUR OIL ? Well it goes to the landman to keep for his own benefit as working interest or sell your 80% to the oil company that keeps it as working interest.
If you do working interest YOU GET 100% instead of 80% of your oil revenue. Why lease away 80% and only keep 20% when you own 100% to begin with ? IT'S YOUR OIL NOT THE LANDMAN'S OR OIL COMPANY'S. YOU get all the benefits of your oil not the landman or oil company.
Of course the landman (lease salesman) or middleman will NOT be part of the deal. So they will NOT want you to do working interest because they do NOT make $$ of your oil lease. It's their job to get your leased so the oil company gets the 80% of you oil.
Their are risks, but with today technology if the oil company is going to drill they have researched all the risks and still willing to invest in your oil pool. The risks are low or they would not drill. You will have to pay for the expense of your portion of the well, but the oil company will keep your share of the profits until the expenses are paid. So you DO NOT have to get a loan for you share of the expenses. Just be patient and get ALL your oil $$$. Do not let some one else have 80% of your oil to keep for working interest and or sell for to oil companies for much more than they paid you !!!
Oil lease is for the mineral owner to lease out to oil companies. Oil companies and landman keep the remaining interest as working interest profits. So you get 20% (leased) and they get 80% maybe that is why oil companies are so rich ???? Also when you get that bonus check and royalty check remember you pay taxes up to 42% on that money. If you do working interest you can deduct your share of expenses and your taxed at a much lower rate than ordinary income rates. plus wellhead tax.