NRR has sent me several lease proposals over the last year or so. The last was several months ago and I "checked" the box to "Not participate and be subject to compulsory pooling and risk penalty..." The packet I received a couple days ago included a letter stating
"North Range REsources, LLC is planning to drill an oil well, Eagle 1-2V, located in W2(containing 320 gross acres, more or less) of Section 1, Township 145 North, Range 100 West, McKenzie County, North Dakota. You own a share of the minerals in the mentioned section and a plat of said well location is attached. You have multiple options in regards to this well.
1) Lease your mineral interest to North Range Resources, LLC and receive a royalty on production.
2) Participate as our partner by paying your share of the estimated drilling, re-working and completion costs.
3) Do nothing and be subject to compulsory pooling and risk penalty associated with the compulsory pooling as outlined in NDCC 38-08-08.The letter goes on and gives depth of the drilling in the Mission Canyon Formation, for an estimated cost of $1,502,950.00. An authorization for expenditure was included. My estimated ownership and share of the expense to drill this well is .09469692%. If I elect to participate, I am to send them a check for $1,423.25. A Joint Operating Agreement and COPAS will be forwarded after receipt of my check. An offer to lease my mineral interest was also enclosed. The lease is for my net mineral acres of only 2.118408 acres. $100/acre signing bonus and 15% royalty. 3 year term, with of course all the continuing goobly goop.
Can anyone give me advice on how best to respond to the 3 options and thus the potential best return? Anyone know the potential of this area? This is the first time I have been notified by a company, that a well is going to be drilled. On the letter there is printed:
USPS CRRR: #7016 1370 0000 0971 4307 if that means anything to anyone.
Thanks for any help, and I would be happy to get back to anyone with more information if needed.
Mr. Ward, the minimum royalty if force pooled is the weighted average of what everyone else in the spacing leased for OR 16%. If you are interested in leasing, I would contact NRR and start negotiations. You might participate if double [ slippage, cost overruns and plugging ] the cost of participation or about $3,000 is a small sum to you. Failing that, I would go non-consent.
Oil had been found in your section in at least 2 formations in 1981 or thereabout but the well was plugged and abandoned after about 18,000 barrels of oil, most likely because it wasn't worth the effort at that time. Drilling science has come a long way since then and infrastructure is better.
In your position I might well participate in the well and my concern would be that my interest was not large enough to make it worth the trouble. Of course if it were successful but not successful enough to be worth the trouble to me personally, you could probably sell your interest at an auction house.
Negotiating a lease can be interesting but time consuming. I would be non-consent rather than just signing and returning the lease. Participating with a small interest could be an interesting hobby pays a small amount or a pain in the neck. It all depends on your situation.
Thank you for your expertise. I am always a little leery of sending someone money so they can send you money. Your reasoning for the double participation fee is......? Is that what usually results, about twice the usual demand? $3000 would be a little more than a comfort level currently. More tempted to put that into an IRA stock fund. What happens with compulsory pooling as far as what I would be held responsible for? The mineral acres were owned by my mother in 1981. After her death the minerals were passed equally to 6 heirs. I don't remember her ever getting a royalty, but it may have never been mentioned to me. Is 18,000 barrels a small production? They must feel additional drilling could bring profit or else they wouldn't be doing it. It sounds, according to your comment, that the small amount of mineral acres I own is not going to be a lot of difference in financial return either way. Sounds like non consent may be the way to go. I am sure that was my response to them previously. I probably don't need a hobby right now.
Mr. Ward, I just doubled the AFE cost as a worst case scenario, if they lost the well, tried to repair and failed, then had to plug it. In that situation it might cost double what they originally asked to participate.
Force pooled you are responsible for nothing. The oil company can only recover from oil and gas production, you never owe anything out of pocket until the cost of drilling, completion, surface equipment, the 50% penalty of the cost of drilling and completing. Worst case? The operator could place a lien against the future production of your minerals. You would receive your royalty, the weighted average of what everyone else in the spacing leased for OR 16% whichever the operator elects.
If you are non-consent and the well is a failure and plugged and abandoned? You want to be non-consent on future wells also because you don't want a lien to swallow your royalty under a lease.
Mr. Ward, if you went non-consent, do not be surprised if the operator still send you lease offers. Nobody but the operator can lease you once you go non-consent but if the prospects are decent, expect to hear from the operator.
I don't know if you are still active on the site, or whether or not the whole thread will be available to you, but almost a year ago now, NRR tried to lease my mineral acres at 100/acre. You had mentioned that I may get additional lease proposals from them. And I did. I received one today, but uping the leasing bonus by 3X. Now at 300/acre. I am going to remain a non participant, but thought I would throw this out to you for any thoughts you may have on the aforementioned mineral acres.