I inherited a few small leasehold mineral interests in New Mexico years ago. I recently received a letter from Matador proposing to drill two horizontal well that intersect with one of my leases. I checked at https://wwwapps.emnrd.nm.gov/OCD/OCDPermitting/Data/Wells.aspx and the wells are permitted:
Travis State #120H SE4NE4 of Sec 24, 18S-28E API: 30-015-56980
Travis State #130H SE4NE4 of Sec 24, 18S-28E API: 30-015-56979
Even though they estimate that my Working Interest is only 0.291661%, my estimated cost for the two wells is $57,192, which is more than I can afford. And they want me to pay the full cost upfront. If I go non-consent, there is a “100/300/300 Non-Consenting Party risk penalty.”
(1) My main question is: has anyone ever had a well that paid out after producing enough to pay off the penalty?
Of course, it would be great if someone knew about a horizontal wells in S.E. New Mexico, but I’m really curious in general about the issue.
(2) Do I have any better alternatives than going non-consent at this late point? Maybe doing an assignment with a third party that reserves a 25% royalty? But then who pays the royalty? Will I ever see it?
Did you have any prior lease discussions with Matador? Have you asked Matador about doing an oil and gas lease at this time? Even without a bonus, that might be best. Based on link below, NM statute may require that an unleased mineral interest be paid 1/8 royalty until payout. If so, a 3/16 or higher lease royalty could be better. But you need to clarify with an attorney or someone familiar with NM law. NARO-Rocky Mountain includes New Mexico so you may want to join and see their materials. If Matador is sending AFE materials, you will need to act quickly. It will likely be too late to involve a 3rd party lessee/assignee, especially if Matador could refuse to let them participate as non-op working interest and perhaps stop you from receiving the 1/8 royalty (assuming the linked article is correct). How soon the wells will get to payout is not predictable as it depends on volumes and what happens with oil and gas prices.
You don’t want to go non-consent. You should get a statutory 1/8th royalty but you’re not going to get anything else. You won’t be back in the well fully until 3x pay out, which is unlikely. It can happen, but it’s unlikely in 18s28e in any sort of meaningful timeframe. You get more than 1/8th to lease, plus a lease bonus, so tell Matador you’d like a lease offer.
That or lease it to somebody else. Like you say. Get a 25% royalty and a bonus. There are companies who are looking to get leases and happily cover the $57k of drilling costs. I don’t know if it’s kosher to name names but I’ve had ok luck doing this with Veritas and Tilden. You’ll get paid your royalties.
Mewbourne also has permits in this section that were recently approved. Looks like maybe they are drilling 3rd BS and Matador the 2nd BS, or maybe they will be fighting over operations. So could probably call Mewbourne and ask for a lease also.
The forced pooling process in NM is set up to put pressure on people like you to make a decision through the threat of better terms for the operator….so that wells can get drilled, to be blunt. Sounds like you are trying to make a decision. IMO the decision is participate or lease, and if you can’t participate, then it’s only lease.
Agree with others here that if you are not going to participate as a working interest owner, then you should always request a royalty oil & gas lease for your open mineral interest. In NM, the operators/drillers are obliged to negotiate a lease for open minerals ahead of a project assuming they find you. If you cannot/are not interested in being a working interest partner then you should request and be able to negotiate standard royalty interest lease terms (we always ask for a 1/4 royalty, no deductions and Pugh clauses that release unused minerals etc). If Mewbourne and Matador are both in the area with permits then that could work in your favor for getting the terms you request from Matador. As always, when leasing, having an O&G lawyer help draft/review documents is advised. Good luck!