Lease offer by Diamond Resources (dozens of mineral rights co-owners)

My great-grandfather apparently retained mineral rights on two quarter-sections of land in Billings County, North Dakota: T137N/R100W SW1/4 of Section 11 and NW1/4 of Section 14. A few weeks ago, Diamond Resources offered $25 per acre for a 5-year lease with a 1/6 royalty. I thought that was pretty low, and I know somebody in a similar area (about 15 miles north) who recently received $200 per acre for a 3-year lease with a 3/16 royalty. He and his attorney suspect that Continental Resources is behind the offer.

So, I contacted the Diamond Resources Landman and counter-offered the latter terms above (as well as a guarantee that there would be no “royalty subtractions” for transport and refining of natural gas. The Landman said he would confer with his “client,” but then a few days later, he said my offer was refused, because his client could not meet those terms based on the rights being at the southern edge of the current prospect.

I believe my great-grandfather and his wife had 10 living children when they both died, but only one of those children is still alive, so there are likely dozens of co-owners (I have a detailed genealogy of all of the descendants). I am representing the 5 children of one of the 10 children of the original owner.

I really don’t know a lot about all of this, and I have two initial questions:

  1. Does anybody have any feedback/information on what is currently happening in that area, and what lease terms would be reasonable?

  2. If several of the dozens of co-owners sign the leases with the original terms sent by Diamond Resources, but other co-owners refuse to sign, what happens if oil/gas is discovered? Do the co-owners who refused to sign the original lease get contacted again, and can they negotiate the royalty? I am trying to figure out whether it is best to just wait at this point.

2021-06-24 Diamond Resources Paid-up Oil and Gas Lease_Redacted.pdf (3.3 MB)

I can give some general information. There have been no leases are permits or completions in the last 999 days. The last well that was drilled in the whole township was in 2013. So this may be a new leasing effort-perhaps for horizontal drilling. The five year lease makes me think they are not in a hurry to drill. I never lease for more than three years. North Dakota law usually allows for post production charges for gas and oil unless you get a lease that does not permit it and that can be hard to get. the 1/6th is the minimum royalty for ND. I always ask what they are offering at 3/16ths and 1/5th and 1/4, just to see what they will say. And if you are really dealing with CLR, then they will not be inclined to let you have a lease with no post production charges.

Each of the heirs must be able to prove that they have clear title through a probate or other title document. Good thing to start on now. Each heir can sign their own lease depending upon how the wills read through the generations. If there are no wills then you will need to go through the intestate process which takes awhile, so get started. Your documentation of the family will be very helpful.

There is an old oil field which was drilled in sections 15, 22 and 23, so ask Diamond who is going to be the operator and will the well(s) be conventional or horizontal. My opinion (free, so take it or leave it) is that the five year time frame and the low offer is a low fruit teaser and the time frame is not in a hurry. Gives any relatives time to get their title fixed and be ready for a later offer (or none).

ND has rules which apply to force pooling if all owners don’t sign. The North Dakota Oil and Gas commission is a good place to start for information. Folks can only make a decision given the information they have at the time. Hard to know if offers will be better or worse down the line. There has been some horizontal drilling in 130N-100W, so the trend may or may not extend into 137N.

I took a quick look at the lease and there are quite a few clauses in there that are not in the mineral owner’s favor at all. I would not sign it without making significant changes with the help of an attorney.

Thanks so much for your reply, M_Barnes. Do you know whether there is a requirement to re-contact any owners who did not sign the lease, if they drill and start producing oil? Can you provide some examples of owner-unfriendly terms in the lease?

The force pooling will take care of anyone who did not sign a lease.
These are non-legal advice comments. Just some of the things I noticed and not meant to be inclusive. -You need to get the two different sections on different but identical leases. Never lease two sections together on the same lease.

Sec 1. five years is too long. No more than three. See 18 which extends it another two years. No way.

Sec 3. and 1&2) at the wellhead language and the following deducts are not favorable

sec 4. $1 a year is negotiable for shut in. Needs a time frame limit

sec 5. needs a companion “if you own more than described interest” phrase

not sure what was redacted, but could be important

sec 14. I would not use this warranty clause

Sec 17. I strike the Force Majeure clause. Failure to plan on their part is not my problem. Only Acts of God should be included or rule of law, but I strike the whole thing if I can.

Sec 18. Not in your favor at all.

The lease is missing some important clauses such as a commencement of drilling, depth restrictions, etc.

I would never do a bank draft these days. I would only hand over notarized leases for a cashier’s check. Even better, I let my attorney or accountant hold the signed lease until the check clears the bank and then they would hand over the lease to the lessee.

Get an attorney to help you get a better lease.

Again, thank you very much for your guidance, M_Barnes! The “redacted” portion of the lease is not really a redaction–there is nothing missing. It is an artifact of having somebody else scan a legal size lease on a letter size scanner. I just blacked out the part that was repeated.