Does anyone know the going rate for mineral rights lease in McKenzie County: Township 149 N Range 100, Section 3 and 4? Any input would be greatyly appreciated.
PUpsahl, I think they could do a little better than the going rate since we are talking 1 well By Hess Bakken Investments with wellbore in section 3, 3 wells operated by Triangle Petroleum with wellbore in section 4 with another 4 wells in DRL status meaning they are just waiting to be completed for a total of 7 wells in the T-149 R 100 sections 4-9 spacing. I wouldn't be leasing any of it. Triangle is already in production mode on the 4-9 spacing. I would be non-consent in that spacing at least. If I had cash, I would participate in my choice of the already producing wells to the extent that I was able. If you just had to lease, I would start negotiations north of $5,000 per acre for a spacing with 7 wells in it and being me, I would be happier if they did not agree to it. Good luck.
r w kennedy said:
PUpsahl, I think they could do a little better than the going rate since we are talking 1 well By Hess B
Thank you Mr. Kennedy
I appreciate your information although I don’t totally understand all of it since I am so new to this whole thing. Don’t have the money to invest and don’t totally understand the “Non Consent”
Here is my situation
I inherited some mineral right from my father which I discovered about a year ago. 1/12th owner of 160 acres in a 1280 acre spacing unit. I am in the process of getting these mineral rights into my name and because I am very new to this I don’t know exactly what to expect once this process has been completed. I am only guessing that there may be some offers to lease and I have no idea of what would be fair and what this process entails. What happens when there are already producing wells on the property? How does one calculate what the potential royalty payments might be (is there a formula that is fairly accurate)? I do have a lawyer who is working on this for me but I thought I would also get some insight from people who have maybe experienced some of these issues first hand. Thank you
PUpsahl
akken Investments with wellbore in section 3, 3 wells operated by Triangle Petroleum with wellbore in section 4 with another 4 wells in DRL status meaning they are just waiting to be completed for a total of 7 wells in the T-149 R 100 sections 4-9 spacing. I wouldn't be leasing any of it. Triangle is already in production mode on the 4-9 spacing. I would be non-consent in that spacing at least. If I had cash, I would participate in my choice of the already producing wells to the extent that I was able. If you just had to lease, I would start negotiations north of $5,000 per acre for a spacing with 7 wells in it and being me, I would be happier if they did not agree to it. Good luck.
The law on non-consent in ND is North Dakota Century Code 38-08-08, it is suggested reading. To be non-consent, you need do absolutely nothing, sign nothing, send nothing, pay nothing. You receive 16% royalty from the very first barrel, the other 84% goes to pay for your portions of the wells and a 50% of actual cost of drilling and completing penalty. Suppose that each acre has $200,000 of recoverable oil and suppose that each well costs $7,000 per acre x 7 =$49,000 X 1.5 = $73,500 per acre cost and penalty leaving $126,500 per acre that could be yours, or you could lease and make $40,000 per acre spread out over 40 years or more. You never owe anything out of pocket being non-consent until your wells are paid for and the penalty recovered from PRODUCTION only. You will then receive 100% of the value of your oil less the day to day cost of production that can be laughably low. I have one well that costs $1.40 per acre per month to produce, that is after the cost went up!
Thinking more about what I told you in negotiating a lease, $5,000 is probably too low. It might be better to ask for $1,000 per acre per well or $7,000 per acre. The operator could pay that or face only making the risk penalty for my acres. You see, they can't make the kind of money they want if you don't lease, you have to agree to give them 80% of your oil, they can't just take it. They have alot of confidence in your acres or they would not have drilled 7 wells, that isn't testing, that is production mode. The 16% royalty you would receive as non-consent from the very first barrel is not chicken feed either. If you did not want to be bothered with administrating your working interest, you could probably sell it for more than the amount of 40 years of lease royalty as soon as the wells pay out for you. You could get your money alot sooner than waiting until the wells run dry as leased. Give it some thought, do a little research. Keep in mind that they didn't drill 7 wells because they didn't think they would make any money, they saw what 3 wells did and liked it so much they drilled 4 more. After payout, you would make MORE money than the operator per barrel because you don't have to pay anyone a royalty. At $100 oil the operator makes $60 a barrel after expenses AND paying a royalty. Operators have alot more overhead than you would. Wouldn't you rather make $60 to $80 per barrel average for all of your oil than $20? Isn't it worth looking into? If nothing else it would be a great bargaining point, if you really knew you could do it, and actually you can. You could push it to the wall in negotiations, knowing you would never be shut out because of the 16% statutory royalty and quite possibly make 300% more. I know, crazy talk. I do that some times. I and my brother are non-consent in a handful of spacings and are quite satisfied with it.
Frankly I put more effort into telling people about non-consent for absolutely no gain than most of them are willing to put out to make an extra million dollars. Go figure.
Thanks for the Storhouse of information Mr. Kennedy. It's a lot to digest for someone who is such a novice at this point but I will definitely start looking into these opetions and become more knowledgeable. I probably don't have enough information to get any estimates as to what my 1/12th ownership in the 160 acres in a 1280 acre spacing unit might be. Is there any type of formula that could be used to estimate this. What additional information do I need? The probate process has been a slow process because of my lack of contact with any of my relatives over the years but should be completed relatively soon, Hopefully. Thanks again for the info.
PUpsahl
r w kennedy said:
The law on non-consent in ND is North Dakota Century Code 38-08-08, it is suggested reading. To be non-consent, you need do absolutely nothing, sign nothing, send nothing, pay nothing. You receive 16% royalty from the very first barrel, the other 84% goes to pay for your portions of the wells and a 50% of actual cost of drilling and completing penalty. Suppose that each acre has $200,000 of recoverable oil and suppose that each well costs $7,000 per acre x 7 =$49,000 X 1.5 = $73,500 per acre cost and penalty leaving $126,500 per acre that could be yours, or you could lease and make $40,000 per acre spread out over 40 years or more. You never owe anything out of pocket being non-consent until your wells are paid for and the penalty recovered from PRODUCTION only. You will then receive 100% of the value of your oil less the day to day cost of production that can be laughably low. I have one well that costs $1.40 per acre per month to produce, that is after the cost went up!
Thinking more about what I told you in negotiating a lease, $5,000 is probably too low. It might be better to ask for $1,000 per acre per well or $7,000 per acre. The operator could pay that or face only making the risk penalty for my acres. You see, they can't make the kind of money they want if you don't lease, you have to agree to give them 80% of your oil, they can't just take it. They have alot of confidence in your acres or they would not have drilled 7 wells, that isn't testing, that is production mode. The 16% royalty you would receive as non-consent from the very first barrel is not chicken feed either. If you did not want to be bothered with administrating your working interest, you could probably sell it for more than the amount of 40 years of lease royalty as soon as the wells pay out for you. You could get your money alot sooner than waiting until the wells run dry as leased. Give it some thought, do a little research. Keep in mind that they didn't drill 7 wells because they didn't think they would make any money, they saw what 3 wells did and liked it so much they drilled 4 more. After payout, you would make MORE money than the operator per barrel because you don't have to pay anyone a royalty. At $100 oil the operator makes $60 a barrel after expenses AND paying a royalty. Operators have alot more overhead than you would. Wouldn't you rather make $60 to $80 per barrel average for all of your oil than $20? Isn't it worth looking into? If nothing else it would be a great bargaining point, if you really knew you could do it, and actually you can. You could push it to the wall in negotiations, knowing you would never be shut out because of the 16% statutory royalty and quite possibly make 300% more. I know, crazy talk. I do that some times. I and my brother are non-consent in a handful of spacings and are quite satisfied with it.
Frankly I put more effort into telling people about non-consent for absolutely no gain than most of them are willing to put out to make an extra million dollars. Go figure.
Pupsahl, I would be happy to answer any questions but I can,t figure out what your question is? I've told you the kind of money the operator makes if you lease.
Told you you would not have to pay anyone a royalty so you would make more than the operator.
Told you a good high estimate [to be conservative, your wells probably cost less] of well cost $8,000 per acre which would mean a $4,000 penalty. The operator did not just drill wells to make $4,000 per acre per well, period. They would have spent their money someplace else with a better return if that was all they expected to make.
Told you that you owe nothing out of pocket until you are receiving 100% of the revenue for your oil less the cost of production, and told you how low the cost of production can be.
I will tell you now that if two of your wells were utterly destroyed and two more wells had to be drilled to replace them that you would still make more money than leasing but it would just take a good while longer to pay for the replacement wells. you'd still make more money than leasing.
If you had poor wells, leasing would be attractive but you don't have poor wells, they have drilled and have been producing 3 wells for a substantial period of time and they just drilled 4 more. If you wanted an idea of what kind of value that is, why don't you try offering it for sale on one of the online mineral auction sites as a potential working interest in 7 wells already drilled with know production on 3 wells? You might decide to cash out if someone offers you $500,000? you have 242,567 barrels production right now from the 9-4 spacing X $80 per barrel = $19,405,360 worth of oil [conservative estimate] have been sold out of the 9-4 spacing in the last year and a half already that would be $15,160 dollars per acre. I know people are not used to looking at dollars in the millions, but the oil company is and they just drilled 4 more wells in that spacing. I have heard of one person who claims he went non-consent and was dissatisfied with it, but then he thought his well would pay out in months and he would be almost instantly rich. If it takes 3 years to payout, that's what it takes, if it takes 5 years to payout, same thing. The thing is, you can enjoy the 16% statutory royalty from the very first barrel until that time. Then you start making 100% less cost of production. You start out making a little less than leasing but when you start making 300% to 400% what you would have made from leasing, you will catch up quickly. The wells would have already declined, but you would probably be make more money per month than those who leased made in the very beginning when the wells were fresh and because the wells have declined, you will not have a precipitous drop in your income. Lease money can look pretty sorry after the well production declines 70% in the first couple years. If you are going to be receiving 100% in the future though it's just an incident of passage.
These aren't my figures but I am told that 1.000,000 barrels of oil if spilled on the surface of a 1280 spacing would constitute a puddle 3/4 of an inch deep.
If you are a have to have it now person, there is not going to be a satisfactory route to take but if you can wait while making 75% as much [16% statutory royalty vs 20%] royalty, then eventually in a few years you will make a whole lot more. You never pay anything out of pocket until your wells pay out and you are receiving 100% less cost of production, if they never pay out you owe nothing.
Try the online auction to see what it is worth, you could probably search for an online auction on this site using the search function. If your price is not met you don't have to sell and there will be multiple bidders because they will get a chunk of the production of the first 3 wells from the start. I don't know what more I can tell you except that I will do it all for you, but I am not going to do that, sorry. Good luck!
Thanks again Mr Kennedy
I guess I'm a little slow to understand all of this but I think after reading over your response numerous time, I am finally getting the differneces between leasing and Non consent. Hopefully our probate will be completed shortly and I will be in a position of having to make some of these decisions. All of this information has given me a lot of food for thought and will very helpful when I am in the positions of having to make these decisions. Thank you so much for all of the info and for being so patient with me. Like I said I am very new to all of this but understanding more all of the time. Have a great day
PUpsahl
r w kennedy said:
Pupsahl, I would be happy to answer any questions but I can,t figure out what your question is? I've told you the kind of money the operator makes if you lease.
Told you you would not have to pay anyone a royalty so you would make more than the operator.
Told you a good high estimate [to be conservative, your wells probably cost less] of well cost $8,000 per acre which would mean a $4,000 penalty. The operator did not just drill wells to make $4,000 per acre per well, period. They would have spent their money someplace else with a better return if that was all they expected to make.
Told you that you owe nothing out of pocket until you are receiving 100% of the revenue for your oil less the cost of production, and told you how low the cost of production can be.
I will tell you now that if two of your wells were utterly destroyed and two more wells had to be drilled to replace them that you would still make more money than leasing but it would just take a good while longer to pay for the replacement wells. you'd still make more money than leasing.
If you had poor wells, leasing would be attractive but you don't have poor wells, they have drilled and have been producing 3 wells for a substantial period of time and they just drilled 4 more. If you wanted an idea of what kind of value that is, why don't you try offering it for sale on one of the online mineral auction sites as a potential working interest in 7 wells already drilled with know production on 3 wells? You might decide to cash out if someone offers you $500,000? you have 242,567 barrels production right now from the 9-4 spacing X $80 per barrel = $19,405,360 worth of oil [conservative estimate] have been sold out of the 9-4 spacing in the last year and a half already that would be $15,160 dollars per acre. I know people are not used to looking at dollars in the millions, but the oil company is and they just drilled 4 more wells in that spacing. I have heard of one person who claims he went non-consent and was dissatisfied with it, but then he thought his well would pay out in months and he would be almost instantly rich. If it takes 3 years to payout, that's what it takes, if it takes 5 years to payout, same thing. The thing is, you can enjoy the 16% statutory royalty from the very first barrel until that time. Then you start making 100% less cost of production. You start out making a little less than leasing but when you start making 300% to 400% what you would have made from leasing, you will catch up quickly. The wells would have already declined, but you would probably be make more money per month than those who leased made in the very beginning when the wells were fresh and because the wells have declined, you will not have a precipitous drop in your income. Lease money can look pretty sorry after the well production declines 70% in the first couple years. If you are going to be receiving 100% in the future though it's just an incident of passage.
These aren't my figures but I am told that 1.000,000 barrels of oil if spilled on the surface of a 1280 spacing would constitute a puddle 3/4 of an inch deep.
If you are a have to have it now person, there is not going to be a satisfactory route to take but if you can wait while making 75% as much [16% statutory royalty vs 20%] royalty, then eventually in a few years you will make a whole lot more. You never pay anything out of pocket until your wells pay out and you are receiving 100% less cost of production, if they never pay out you owe nothing.
Try the online auction to see what it is worth, you could probably search for an online auction on this site using the search function. If your price is not met you don't have to sell and there will be multiple bidders because they will get a chunk of the production of the first 3 wells from the start. I don't know what more I can tell you except that I will do it all for you, but I am not going to do that, sorry. Good luck!