Is this lease offer reasonable?

North Dakota Mineral Rights Williams County, ND
1

We have acreage currently under a lease. Wells have been developed on some of the sections, but two of the sections are non-producing and should be released. We should have had separate leases for non adjoining sections - we realize that now. These two sections that should be released will require some litigation, which we personally are not thrilled about pursuing. It is quite promising though that we would win.

We have an offer from a company to lease with them - initial consideration of $50 per mineral acre (non-refundable bonus within 15 days of signing). They will bear the costs of the litigation - and then upon successful litigation will pay $1,500 per net mineral acre (3 year term - 20%).

This property is located in T155 N - Range 99 W -- Section 13 and 24. We are aware being they would be bearing the cost of litigation, that the per acre price is lower than average. My question is -- what is the average in this area at this time? I'm sure most of the acreage in this area is already leased and not much is available. Would we be able to get more than $1500 for this acreage, considering they will be paying for the litigation?

2

Considering the success that Continental is having just east of you, I would not consider $4k per acre and 20% out of line.

Considering the cost of litigation, whether it would be fair or not depends on how many acres you have.

3

We have 120 net acres - and hopefully litigation won't be too lengthy. Hopefully.

4

Becky, there is also a well drilled there, the operator is not going to want to hand that large a chunk of it to someone else who would gain the right to participate after the productive capability is known, if your lease of those particular acres was to be invalid/ expired, due most likely considering the timeframe that not enough diligent effort was made to make a well after it was spud. 2.5 years or more after spud and the well is now in DRL status. It might be a short fight, if the operator/lessee were adequately funded, they would have completed that well years ago.

If you are not going to pay for the litigation, I think you will have to take what they offer because what would you have without them? I would not accept a lower royalty though.