Bison is offering $1000 per NMA for 3 yr lease and 3/16 royalty for my interest in Sections 3 and 10 where they have 11 horizontal wells shown planned from 1 drill pad (aqua, center of image) in Section 3 to produce Sections 3, 2, 10 and 15 as shown.
Altogether a rather impressive set of wells which they claim will spud in 1Q24. There are several vertical wells in the adjacent sections that are shut in and several newer extended horizontals nearby that seem to be doing well.
Two questions. Are the bonus and royalty fair for this location?
Second, the royalty is reduced by Post Production Costs which
āinclude without limitation, all costs of gathering, marketing, compression, dehydration, transportation, removal of liquid or gaseous substances or impuritiesā¦and any other treatment or processing requiredā by the unaffiliated purchaser. Seems horribly open ended.
You can negotiate on all clauses to be included in an OGL. You can also be patient and participate in the COGCC forced pooling process. Your ability to negotiate is generally related to the size or value of your interest. Look to production of nearby similar wells for you analysis.
Thanks James, appreciate the reply. What would be the benefit of participating in the COGCC forced pooling process? Isnāt that something to be avoided?
For context, my mineral interest is fractional percentage, too small to merit engaging an attorney. If Bison were to accept edits to my lease agreement, it is more likely for expedience than because I have any leverage.
And given my understanding of numerous small interests in this property, Bison will likely have to file for forced pooling regardless, in order to get everyone accounted for. So itās not as though failing to sign me will save them that trouble.
You mention ālooking to production of nearby wellsā, which I was able to find on GOGCCās online map as last 12 months production.
How about information on the lease provisions of nearby leases or other leases on this tract? Aside from posting that question here (no responses thus far), is that information entirely confidential or are there sources?
You have a few issues going on with this negotiation. First, the operator will not offer better terms than they believe will come out of the pooling order. You may want to look at recent nearby pooling orders for some ideas on the terms that may be available.
Second, all OGLs are filed in the County Clerkās Office. You can perform a search of the public records for recent OGLs in the area at https://www.weld.gov/Government/Departments/Clerk-and-Recorder/Recording-Department . The recent industry trend of filing OGL Memos rather than the actual OGL may prevent you from learning helpful document details; however, you may learn other companies that are active in the immediate area and are possible alternatives for you to contact for more favorable lease terms. You can also contact people that have leased recently and ask them if they will talk to you about their OGL terms.
The more information you have available, the greater your negotiating tools. You may not get the terms you desire, but your goal is to get the best terms possible. I always mention the pooling process as an option since you will have the most decision data at that time. You can still accept a lease rather than the pooling terms, but you have to be ready to act promptly.
I started as a landman in 1981 and soon thereafter started acquiring mineral interests as a part of my investment portfolio. I now have over 300 properties in 8 States ranging from very small fractional interests to 100% mineral interests. I have also helped clients manage mineral interests that they have acquired through their families. I always stressed the value of fully researching the issue before you make a decision. You seem to want to put forth the effort to attain the best results, Remember to learn all you can about Bison. I always start at the website and reference LinkedIn. Good luck to you. Write back if you want other thoughts.
Thank you James, you are an absolute lifesaver. I went to the Weld County link, was able to locate where they record Oil and Gas Leases and Pooling Orders, experimented with their search engine, and searched in my township for leases with grantee āBisonā which resulted in 100+ hits. Registering as a user (free) allows me to open documents.
Incredibly, the very first lease I opened was recorded within the last 6 months using essentially the same Bison IV lease form I was given but with markups made to the royalty (20%), title warranty (crossed off) and adding a superseding Addendum paragraph that limits royalty deductions solely to severance & production taxes. There may be other edits as well. I have downloaded to do a line-by-line comparison.
I will look at other recent leases as well, and also see if I can find any nearby Pooling Orders as per your suggestion.
Once again, thank you for your kindness. I know you didnāt have to take the time to share your knowledge and experience on this forum, but I am very grateful you did!
Glad to hear you were able to get some positive results. This will help you in your negotiation with the Bison landman. Have your negotiations been with Bison personnel or a lease broker? Keep copies of the OGLs you were able to uncover. They will help you get to the next negotiation stage by saying Bison has already made the accommodation in the area. That will be a persuasive argument at the COGCC pooling. A good result for a small fractional mineral owner is when they can have an OGL on equal terms to larger mineral owners.
Most professional mineral owners will attempt to negotiate the highest royalty possible when you are talking about lower bonus offers such as you have in Weld. I do not have any properties in this area, but a 10,000ā+ horizontal well can easily come in at a cost of $10 million. At six wells per unit that would be $60 million for drilling and completion. At $1000/ac for 1280 acres that will yield a OGL bonus cost of $1.28 million. Most of these wells will produce 50% of their reserves in less than 3 years with the balance over the next 12-15 years. Given all this, the economics for OGLs is fought much more in the royalty area than bonus. If Bison drills the wells, then the higher royalty is generally the better option. If they do not drill, then obviously the higher bonus is best. You should not be surprised if they cool the development a bit due to the current oil and gas prices.
Thank you James. The lease offer and associated letter explaining my options (lease, participate, non-consent) came in the mail from a Bison IV company landman.
Well AFEās range from $6.1 to $8.6 million and total $75.0 million for all eleven wells. The letter states intent to drill in 1Q24. Bison IV received $500 million equity commitment in February for J-D Basin development and these have all been permitted so could go ahead on schedule.
My inclination is to agree to the bonus but return a signed lease form with royalty and other edits they have already accepted from others. If they donāt sign, go from there but proceed to pooling if needed.
Any insight on how pooling hearings in Colorado work? Should I attend in person? Will pointing out that Bison IV has accepted those terms in the same drill program (albeit Section 2 not Sections 3 or 10) be persuasive?
I do not know how many net mineral acres you own (how many?
), but figthing this, doesnt sound like its worth the effort, have you considered calling and discussing with the bison landman, you would like the same royalty, acreage bonus and terms like others in your township/section have received on their leases?
I know that area very well and have been leasing there since 2017.
I can tell you, some of the recent Bison wells drilled and completed around Briggsdale are monsters, the royalty owners have been getting paid very, very, very well.
It may be a better option to join the team and enjoy what the minerals can bring you and your family.
Did you not voluntailty lease and that is why you received pooling info?
Forced pooling is an unpleasant and costly experience, forced pooling penaltys are 300-600% so its very likely you may not see much royalty if you go that route. Of course this is my opinion only.
Thank you Jason, good thoughts. Iām thinking the same way.
As noted above my inclination is to sign and return the lease form to Bison, but revised with edits that Bison has already accepted recently on other recorded leases within the same 4 Sections of this drill program (shown in aqua above).
If they fail to agree I may end up in a pool hearing, hence my questions above:
Any insight on how pooling hearings in Colorado work?
Should I attend in person?
Will pointing out that Bison IV has already accepted the same edits to other Lease Agreements within the same 4-section drill program be persuasive?
i.e. Will that suffice for the COGCC to rule that my edits to the Agreement are reasonable?
Weld, I want to make sure you understand that a COGCC pooling is not a place you negotiate OGL terms. The COGCC will have certain rules that apply and those rules may be modified by a developing market. Poolings can also be a little āRough and Tumbleā since you are a novice in there dealing with professionals. In no case should you sign the OGL that you modified and return it to Bison. Send the modified OGL to Bison unsigned and tell them these are the terms that are agreeable to you. If Bison accepts, they will forward an amended agreement for your execution or provide a counter offer. Do not ever feel like you have to āgo alongā. This is your property and you have a duty to get the best value in the transaction.
Iāve had 10% of the acres in a project before. I leased 9 out 10 of the acres and used the bonus money to cover part of a 1% working interest. I regretted not being able to take a larger working interest. Just didnāt have the extra money. Iāve also just leased it all. Once I just leased the first 4 well bores with an option to take up to a 50% share of the future wells as an working interest. Many different ways to money from your acres. I got a cousin in Texas. They allowed one well to be drilled on 40 acres with the option to an 51% working interest in the rest of there farm. It was long before the cash flow from the wells paid the next well. If I remember the detail correctly they drilled over 60 wells during late 70ās and early 80ās. Their Great Grandkids call them blessed.
It looks like you and your family members take a more creative approach to the management of your mineral portfolio. More people should consider thinking outside the box when they can afford the capital risk.I have been fascinated with the economics of horizontal drilling. I always look at participation opportunities where I am unleased. Unfortunately, most of the horizontal development on our properties has been on HBP or NPRI properties. The biggest concern that I have is the production costs which always seem to be understated in the economics.
Haack has a point; although, it is always best to push a bit in the negotiation. The penalties Haack refers to only apply in the cases where you elect not to lease or not pay your share of the drilling costs (Non-Consent). Please remember to keep it professional at all times. I found this article that may help you a bit more with CO forced pooling. https://brightonco.gov/DocumentCenter/View/12005/WhatisForcedPooling?bidId=#:~:text=The%20forced%20pooling%20laws%20are,to%20hastily%20sign%20a%20lease . The attorney that authored the article does not make the options all that clear, but it is a place to start if you elect to go this direction. As long as Bison is going to force pool other owners, then your presence at the action should not be at a cost to you. With that said, I am a professional mineral owner and landman that has been in similar situations many times so I am comfortable in the scenario. A pooling can be daunting if you have next to no experience. Remember Bison has a significant investment in this unit and may choose not to work with you if you appear to be too difficult. If all you want is the same deal as they made in the adjoining section, then email that request to the landman along with a copy of the OGL. Make sure to be clear with your Bonus request and any other terms. My guess is there will be a quick response by Bison. You may want to have a professional review any OGL prior to your ultimate execution.
Thank you James, good advice. I will return the lease unsigned with reasonable but necessary corrections and weāll see where it goes. Thank you again for your comments and thoughts.
My Dad graduated college in 1948 with a BA in engineering with a Petroleum focus .In 1950 he received a Masters in Geology. Worked for Sunray for five years and then went independent. So I was raised in the Oil patch. He picked up a lot of minerals over 40 plus years. He would hear of someone selling a farm and make them an offer. Or someone got hailed out and he would buy their minerals.
When he died, we had an folder with an 1/2 inch of mineral deeds in Texas, Oklahoma and Kansas.
Those were the ones that weāre not producing. Many off those got lease 2 or 3 times and still havenāt been drilled. He promoted a lot of the better leases over the years. He died before horizontal boom.
Thanks for sharing some history Lee. I am sure you have some great stories from your father regarding those acquisitions. I was lucky enough to be mentored by men like your father when I started as a landman in 1981. I still reflect upon and employ their wisdom in conjunction with my own experiences in my business.
