Hi,
I own a piece of property in Williams County and we have fielded an offer for a lease. They offered 20% and $500 an acre. We declined the lease and they upped to $650 an acre. In 2014 we leased 20% royalty and $800 an acre. Does anyone think there is further room for negotiation?
Thank you for your feedback!
If you can post your legal description, it would help to assess your potential. Not all of Williams County is equally prospective.
Ah yes, 2014 - the good old days...
Thank you for responding.
The description is:
Williams County
Township 159 North, Range 99 West of the 5 PM line
Section 18: SE 1/4
160 Gross Acres
Does that help?
I have attached two maps that show where your 160 tract is relative to the Bakken development. The larger the circle - the more oil the well will produce. As you can see, you are not located in the best of areas for the Bakken.
The wells in your immediate area will produce between 150,000 and 250,000 bbls of oil. At current oil prices, those wells would be uneconomic to drill. Someone is probably trying to lease you up hoping that oil prices will rise enough to make these worth drilling.
Rather than focus on the upfront bonus of $650 x 160 = $56,000, try to get a well drilled. Your share of a 250,000 bbl well would be 160/1280 x 20% = 2.5%. That's 6,250 bbls to your share, or over $300,000 at $50/bbl.
Thank you for all of the information! I am new to this so I am still trying to understand how this works.
Is the $300,000 number a year? Also, you stated instead of focusing on the upfront number, try to get a well drilled. Is there something you can do to increase the chances that the oil company will actually drill a well?
The well will produce the reserves over its lifetime, 25-30 years for wells like this. The production will be higher early and slowly taper away as it ages. It will stop producing when the oil sales are no longer enough to pay the costs of continued operation. I should have added that, they could drill four wells with your lease included so the numbers above would be four times as large.
The best way to encourage drilling is to limit the life of your lease. Shorter is better, so that they have to either drill it or lose it. I would try for three years or less. That way they have to drill it within three years or give it back.
Having said that, if it does not make economic sense to drill it (it doesn't right now), then it probably won't be drilled and it will just expire undrilled like your last lease did.