In Billings County North Dakota we own Mineral Rights where a Lease just expired June 1st. A few months back we received a Lease Renewal letter from the oil company. We had a 3 year lease with them on section 23 and 14 (14 is the next section North of 23). I found out back in February they put a Confidential Well on section 23 drilling into section 14. The well is situated in the South West part of section 23. Called the Landman from the oil company and he told me the oil company probably was not aware of the well at the time they sent out the lease renewal and the lease is now held by production (Royalties). Point of information (they sent out the lease renewal 2 months after the well was put on to section 23). The landman told me that the lease renewal was a mistake and just tear it up.
I was wondering how the well on section 23 figures in on section 14 that has no well on it? Does section 14 become the HELD BY PRODUCTION part of the original lease or was the oil company sending me a renewal because they wanted to secure the lease renewal because they were not drilling on section 14 and the original lease was expiring and they would lose the lease on section 14 on June 1st when the lease expired?
Any thoughts on this situation?
Thanks Bruce
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Bruce, you appear to be describing a horizontal well drilled in the southern part of section 23 with the wellbore heading north and passing into section 14. The wellbore is the part of the well that gathers the minerals. The wellhead could even have been in section 26 and passed north through both sections 23 and 14 nd sections 23 and 14 would be held by production because their minerals ARE being produced and you can expect to be paid royalty according to your mineral ownership in the drill spacing. The head and vertical part of the well is not the part of the well that is producing the minerals, it's just transporting minerals gathered elsewhere by the horizontal wellbore to the surface. I hope this helps.
If they drilled horizontally from Section 23 under Section 14 then your lease will be held by production and you will be receiving royalties as soon as the division orders are finalized. The fact that the surface location happens to be in Section 23 has nothing to do with where the production is coming from. Royalties are paid based on where the production is actually coming from, regardless of where the surface location may be.
Bruce,
The answer to your question can be found in your lease document. If sections 23 and 14 are listed on one lease, a well producing from any part of the leased acreage or producing unit containing any part of the leased acreage, will be under the total control of the lessee for the lease term. The term of the lease will be described in the wording immediately following the definition of the primary term; that is, absent a clause in the lease that terminates the lease as to the formations and acreage not included in the producing unit. From you description, your leased parcels are HBP. That's not all bad. An operator has spent millions identifying your mineral quantity and quality.
Hopefully, you have an operator with plans to develop the unit and, if so, your only control is the choice of best distribution of the net revenue over the next 30 plus years. If you have unleased acreage in ND, focus on the lease terms your heirs will live with and put the lease bonus into proper perspective.