My deceased parents' minerals rights in Dunn Co. ND (5 acres of 1280 acre spacing unit) were forced pooled in 2008. I have discovered two operating wells from 2009 and 2011 on these acres to which heirs have royaltly claims. Company willing to pay off 15.6% (forced pooling rate) to date and then offer 18.75% royaly plus $500 per acre bonus if we sign lease. Since we are already in forced pooled, do we have any negotiating strength?
You had better find out how much production there has been from those wells, you could be a working interest already and if you are, negotiating a lease is negotiating for a small percentage when you could have 100% less the cost of getting it out of the ground and to market. One of my Dunn county wells has produced about 15 million dollars worth of oil in the past year. I'm in T-149 R-93 section 24, T-148 R-93 sections 2 and 6 all have good wells and I am glad I am not leased.
Ms. Wiman, if you need help getting production figures I would be glad to help. Not all of Dunn county is top producer but alot of it is. I'm only mentioning this because if you are already force pooled at 15.6 percent, why would they offer to increase your royalty and pay you a bonus? If they could let things stay as they are and make more money, that is what they would do. They are in business to make money. You can be sure they are only offering this deal because they will make even more money. You may already have a working interest in a good well, if so that would be alot of negotiating strength, possibly so much strength that it would be a mistake to lease and give up 80% of your oil and the money that goes with it.
I’m interested in this too. I don’t fully understand what the “working interest” is. How in this situation would you figure out your working interest? And what kind of money is involved to have a working interest? Thanks
Mr. Tatum, with your mineral rights in 9 states I would have thought you were an old hand at this business. The working interest is a part ownership in the well or wells. You pay your participation up front or when the operator bills you. Kodiak asked me to pay up front. I have a friend and his operator has not asked him to pay yet but has already sent him a check for close to what his participation would amount to, he will eventually get the bill. In Ms. Wiman's situation, in ND, I would figure my net acres in the spacing and divide the spacing by them. If you had 10 acres in a 1280 you would be responsible for 1/128 of the well cost to participate up front. There is an alternative to participating and paying up front and that is to be non-consent, you would become a carried interest receive the weighted average royalty of those who leased in the spacing received or 16% whichever the operator elects, so say 16% from the first barrel, the other 84% goes to paying for your part of the well and a 50% of the cost of the actual cost of drilling risk penalty that the operator is allowed to recover from production attributed to your part of the well. When your part of the well is paid off and the penalty retired you receive 100% of the proceeds attributed to your part of the well, less the cost of production. Since many people signed leases for 1/6 [16.67%] royalty 16% from the first barrel and 100% after payout/penalty retirement sounded pretty good to me. You are then part owner in the well and could well seel your interest in that well for more than the royalty would pay you in 30 years AND retain your right to lease or participate in future wells in that spacing. The ND law on forced pooling is pretty clear. If you have unleased acreage or a lease offer for mineral acres in ND, I would read the Century Code 38-08-08. Being a non-consent/carried interest costs nothing out of pocket. In a poor well that will never recover the cost to drill plus the penalty there would be little benefit but if you are in an area capable of high production, you could receive the 16% royalty for a year and then your check could become 6 times as large. The point is that as long as the well keeps producing it will eventually pay out and you do not only own a royalty interest in the production, you own part of the well itself and the equipment, you still own the oil and not just a royalty interest in the production and sale. I have gone on at length elsewhere so I won't do it all again here. The place to start in the ND Century Code and decide for yourself if it warrants further study. Rick Tatum said:
I'm interested in this too. I don't fully understand what the "working interest" is. How in this situation would you figure out your working interest? And what kind of money is involved to have a working interest? Thanks
Would that were so. I have been doing this for about three years and this is the first full explanation I have gotten. I could never figure out from the information sent to me what my actual costs would be or any alternatives to up front costs. Thank you very much for the answer. I cannot express my appreciation to you and all those who participate in this forum. I am now further down the line to being an old hand.