Mineral Lease on EN-Hynek-155·93·0 112H-3 Well, Mountrail County, ND

Mr. Skipper, the 50% penalty is only on the actual cost of drilling and completion. Operating and equipment is dollar for dollar. When I saw the operating cost I found it amazingly low.

As Mr. Kennedy states, you pay 100% of well completion costs, then add a 50% penalty on top of those costs.

The drilling costs are hard to estimate. It varies widely depending upon who is operating the well. For a long lateral (1,280 ac unit), currently reported costs run from about $7 million to about $11 million per well. The difference appears to be a combination of experience, economy of scale, and the number of frac stages used. Whiting Petroleum wells are often down in the $7 million range while Kodiak and some of the other smaller operators tend to consistently have well costs on the high end. Regardless of operator, if they encounter trouble during drilling, the costs of any well can quickly be increased by several million. As a result it is always prudent to estimate costs on the high side.

That was my sentiment exactly, too low for any oil company to be very happy about it. I would think it would act as a very strong motive to get all mineral owners in a unit leased before drilling or pooling. Dollar for dollar after completion and lease facilities are installed, hmmmm, sounds too good to be true actually. My background is in upstream operations and joint interest billing.

r w kennedy said:

Mr. Skipper, the 50% penalty is only on the actual cost of drilling and completion. Operating and equipment is dollar for dollar. When I saw the operating cost I found it amazingly low.

May I call you Mark ? Mark, I know it doesn't make the operators happy. I even had the president of the the operating company try to talk me out of it after I got tired of their landmen telling me lies, and he made me a damn good offer too for the time. I hadn't heard of anyone else getting offers of $3k per acre and 20% in that area in 2010. I have described it to other people with interests in ND as "No operator in their right mind wants to carry your interest". I have a Carried Interest Status of Accounts in my hand this very second. I consider it a thing of beauty. I am thankful that my minerals are not in Wyoming, or even Montana.

Mark Skipper said:

That was my sentiment exactly, too low for any oil company to be very happy about it. I would think it would act as a very strong motive to get all mineral owners in a unit leased before drilling or pooling. Dollar for dollar after completion and lease facilities are installed, hmmmm, sounds too good to be true actually. My background is in upstream operations and joint interest billing.

r w kennedy said:

Mr. Skipper, the 50% penalty is only on the actual cost of drilling and completion. Operating and equipment is dollar for dollar. When I saw the operating cost I found it amazingly low.

You can certainly call me Mark. I have an oil & gas background in upstream E&P contracts, leasing, etc, and I am really quite surprised that the bonus and royalties are not higher by now; especially the royalties. This could eventually cause drilling to slow in the Bakken in ND if enough people avail themselves of the opportunity. I wouldn't feel sorry for operators up there either. The amount of money the big operators up there are making and going to make is just so huge. Plus, all of these foreign companies getting involved in the upstream is a real negative. It started in the Gulf of Mexico about 4 years ago, and now the Gulf is full of foreign companies, almost to the exclusion of domestic oil companies who are not majors or very large independents. The same thing is happening in the Marcellus in the northeast and Eagle Ford in Texas. Its the nature of $5-$20 million wells which helps to keep many small and medium-sized companies out of these areas, just like in the Bakken. That will change eventually. I understand Pennsylvania just passed a tax of upwards of $50,000 a well per year for Marcellus wells. That will kill much of the drilling in PA.

Thank you Mark, I agree with what you are saying. That tax of $50,000 in Pa. will cap alot of low producing wells if they are not exempt, and be counterproductive in generating revenue. If Pa doesn't want any more wells why don't they just come out and say so ?

Its unbelievable considering the mineral and royalty owners in PA are going to lose out on hundreds of millions of dollars, at least until the price of natural gas gets closer to $4 or $5 dollars an mcf.