Leasing our of the Bakken

I have been approached to lease around 4000 mineral acres in 131 and 132/98w at $20/acre, 5 yr, 15%. Does this seem reasonable based on the distance from proven fields? How quickly do lease rates fall off in unproven areas? I also have 500 acres in 133 and 134/101w and have had no interest there.

Sounds like a poor lease offer. I think it comes down to do you need the 80k and want a well bad enough right now. Broken down they want to option your land for $4 per acre per year for 5 years. You didn't say if it was an oil co or a speculator. In either case I'd want certified funds/ cashiers check. If you really want a well soon offer 2 or 3 years with proportinately less money per acre. Alot can happen in 5 years.

It was a speculator. I honestly doubt there will be any drilling around here for years based on the success they’re having further north. Why wildcat?

r w kennedy said:

Sounds like a poor lease offer. I think it comes down to do you need the 80k and want a well bad enough right now. Broken down they want to option your land for $4 per acre per year for 5 years. You didn't say if it was an oil co or a speculator. In either case I'd want certified funds/ cashiers check. If you really want a well soon offer 2 or 3 years with proportinately less money per acre. Alot can happen in 5 years.

If they could get you to sign a lease really adverse to your interest they might get a rig to your property to tie up all your acreage with 1 well. A shut in gas well paying $1 per acre per year would do fine to hold you for 20 years or so till they are ready for you. Why wildcat? I have 8 wells in 7 spacings currently. they know they need to put in more wells to drain each spacing. Why aren’t they doing it ? They are too busy trying to get mineral acres held by production to increase their share of the pie and to stop the repetive cycle of leasing, with costs increasing every year. Some of my acres went from $75 per acre and 18% to $3000 per acre and 1/5 in less than 4 years. My spacing with 2 wells will soon have 8, 4 of them mine drilled off of eco pads. The only reason they are drilling 4 at one time is the savings in cost per well, with 1 pad , road, pipeline and rig transport cost and set up time. If you are dealing with a speculator I think he will disappear if you insist on clauses, horizontal and verticle pugh and so forth and insist on a cashiers check instead of a draft. If he could get you to execute a lease and accept a 45 working day sight draft he would have about 2 months to sell your lease to someone else for $30 to $50 per acre and 1/6 without ever having put up any money. He will keep the difference. If he can’t sell it the draft will not be honored, but he may have recorded the lease, in which case you will be out the time and expense to get the lease recinded as I am having to do with 3 leases I signed, which were recorded and I was never paid for.

I appreciate what you are saying but the draft is for just 15 working days and I’m insisting on a seperate lease for every secton of land. Does that help?

r w kennedy said:

If they could get you to sign a lease really adverse to your interest they might get a rig to your property to tie up all your acreage with 1 well. A shut in gas well paying $1 per acre per year would do fine to hold you for 20 years or so till they are ready for you. Why wildcat? I have 8 wells in 7 spacings currently. they know they need to put in more wells to drain each spacing. Why aren't they doing it ? They are too busy trying to get mineral acres held by production to increase their share of the pie and to stop the repetive cycle of leasing, with costs increasing every year. Some of my acres went from $75 per acre and 18% to $3000 per acre and 1/5 in less than 4 years. My spacing with 2 wells will soon have 8, 4 of them mine drilled off of eco pads. The only reason they are drilling 4 at one time is the savings in cost per well, with 1 pad , road, pipeline and rig transport cost and set up time. If you are dealing with a speculator I think he will disappear if you insist on clauses, horizontal and verticle pugh and so forth and insist on a cashiers check instead of a draft. If he could get you to execute a lease and accept a 45 working day sight draft he would have about 2 months to sell your lease to someone else for $30 to $50 per acre and 1/6 without ever having put up any money. He will keep the difference. If he can't sell it the draft will not be honored, but he may have recorded the lease, in which case you will be out the time and expense to get the lease recinded as I am having to do with 3 leases I signed, which were recorded and I was never paid for.

Not if he records your lease and never pays. Certified funds only, is the best policy.

Leasing each section seperate is good for a backup to pugh clauses, but the example I gave of the single shut in gas well holding all for a $1 per acre per year could happen too if there is a clause that says they can pool however they like. If I were an O&G co I'd look favorably on a lease of 4,000 acres that only cost me $4,000 a year til I could produce it.

OK, he has no problem with a certified check and I’ll need to look over the lease to check on the pooling clause, but I still need to go back to my first question. Since I am so far from a producing formation, is 20 reasonable?

r w kennedy said:

Not if he records your lease and never pays. Certified funds only, is the best policy.

Leasing each section seperate is good for a backup to pugh clauses, but the example I gave of the single shut in gas well holding all for a $1 per acre per year could happen too if there is a clause that says they can pool however they like. If I were an O&G co I'd look favorably on a lease of 4,000 acres that only cost me $4,000 a year til I could produce it.

I’m sorry even though $80k might sound like a lot of money unless your in severe need for the funds I would say this is a horrible deal. These plays are still in the infancy of development. Look how much things have changed in the last 3 years… 3 years from now the picture will be a lot different. For $80k you could be giving are you giving up a $300-$1500 bonus down the road? Let alone a 20-25% royalty payment? You need to ask yourself are you willing to take $80k bonus today to give up the opportunity for +$2 million down the road? Then start figuring in the difference on royalties your giving up if you did hit a well… which is at least 5% if not 10%. On a well that produces 500 b/d the first year at $70 crude thats another $630k per well. Call it what you will but this smells like a speculator wanting to pick you off, a guaranteed $80k to me wouldn’t change my families long term financial well being the same as if the play even starts to get a whiff in your area. Be patient, those late to the party are rewarded the best.

Harland:

How far away from your minerals if proven production? It does not appear that any immediate areas around yours have been spaced. I think the $20/acre is too low and 5 years is too long. I would shop around.

The closest big field is 35 miles to the southwest. The Bakken starts just 20 north of here but pumping activity is another 20 north of that. Esser.org has an excellent map that shows all the sites that have been drilled. I can spend hours looking at all the info there.

First one thing must be made clear, you are NOT in the Bakken, and everyone trying to tell you what is relevant as to what is happening in the Bakken is NOT relevant to you. You are near the SD border, and people are leasing in that area probably for potential in the Tyler formation, NOT the Bakken or Three Forks. This is an unproved formation with no modern horizontal fractured wells drilled in the formation yet. If and when anyone ever drills in the Tyler, it may be a bust, which the Spearfish formation in north central ND appears to be, or something significant. Nobody knows. Again, trying to correlate what's going on in the Bakken to other areas outside of the Bakken is reckless. Also, the shut-in gas clause applies to pure gas wells only, not oil wells that produce gas as a by product. The chance that you will ever have a pure gas well is almost nonexistent.

If you don't lease now, and the Tyler proves to be a bust, you will likely end up with nothing because it's likely that nobody will want anymore. If you do lease now and the initial wells prove successful, lease terms will likely be much better for those who waited. So, being you are in an entirely rank wildcat situation, you are taking a risk in either leasing or not leasing now, just as the company that wants to lease is doing. In a few years, they may have worthless leases, or leases worth considerable more. That is the nature of the business. Is it a fair offer? Only you can determine that. Are other companies interested? What are your neighbors being offered?

Few people seem to know that most of the Bakken was leased in the late 80s and early 90s, because some companies thought that horizontal drilling would turn the area into what it has become today. It didn't work, and everyone left faster than they came. That was 20 years ago. It may take 20 years before they can make the Tyler work, it they ever can. At this point, you are speculating just like the leasing company.

Harland:

From what you have said, in regards to the nearest drilling, I would have to agree with Dusty in that you are most likely not in the Bakken. It is your decision whether or not to lease at this time or hold out for possibly years to come or never. It appears at the present time, all available rigs are tied up in the Bakken and may be there for several years. If you do lease today, it sounds you will at least get money for your minerals and it could be plus five years before the Tyler formation gains any attention. There are too many variables looking years down the road in the drilling business such as the price of oil, etc.

Thankyou for your replies.

I am very aware that I am not located in the Bakken formation, thus the initial inquiry. Also, I think you have me confused with another as I never mentioned anything about a gas well. I was just curious as to how quickly lease rates deteriorated with distance. As I previously wrote, I am in total agreement with you about the length of time until any drilling may occur here.

I couldn't find anything at Esser.org was that by chance typed incorrectly?


harland johnson said:

The closest big field is 35 miles to the southwest. The Bakken starts just 20 north of here but pumping activity is another 20 north of that. Esser.org has an excellent map that shows all the sites that have been drilled. I can spend hours looking at all the info there.

Randy:

Try " Eser.org " and see if that works.

Randy G said:

I couldn't find anything at Esser.org was that by chance typed incorrectly?


harland johnson said:

The closest big field is 35 miles to the southwest. The Bakken starts just 20 north of here but pumping activity is another 20 north of that. Esser.org has an excellent map that shows all the sites that have been drilled. I can spend hours looking at all the info there.

Yup, clumsy fingers. Eser.org is correct.

charles s mallory said:

Randy:

Try " Eser.org " and see if that works.

Randy G said:

I couldn't find anything at Esser.org was that by chance typed incorrectly?


harland johnson said:

The closest big field is 35 miles to the southwest. The Bakken starts just 20 north of here but pumping activity is another 20 north of that. Esser.org has an excellent map that shows all the sites that have been drilled. I can spend hours looking at all the info there.