My friend just received a letter from Hess Corporation, the are offering to pay a lease for three years or to "participate" and they require funds from him.
Has anyone heard of such deals and if so what would you suggest is his best options.
Norann
Norann:
I would first suggest that the individual contact Hess Corporation and get further details regarding this offer. It has been my past experience that a landman or company representative contacts the mineral rights owner by phone. I am surprised if this is actually Hess Corporation doing business in this manner. As far as the "participate" area, sounds very fishy. Again, I would contact Hess and see if this is really legit.
This sounds like your friend is currently unleased and that the operator intends to drill a well on mineral acres that your friend has an interest in. Is this in North Dakota? If so, here is a link to ND statutory law:
http://www.legis.nd.gov/cencode/t38c08.pdf
Copy and paste from link:
38-08-08. Integration of fractional tracts.
1. When two or more separately owned tracts are embraced within a spacing unit, or
when there are separately owned interests in all or a part of the spacing unit, then
the owners and royalty owners thereof may pool their interests for the development
and operation of the spacing unit. In the absence of voluntary pooling, the
commission upon the application of any interested person shall enter an order
pooling all interests in the spacing unit for the development and operations thereof.
Each such pooling order must be made after notice and hearing, and must be upon
terms and conditions that are just and reasonable, and that afford to the owner of
each tract or interest in the spacing unit the opportunity to recover or receive, without
unnecessary expense, that owner's just and equitable share. Operations incident to
the drilling of a well upon any portion of a spacing unit covered by a pooling order
must be deemed, for all purposes, the conduct of such operations upon each
separately owned tract in the drilling unit by the several owners thereof. That portion
of the production allocated to each tract included in a spacing unit covered by a
Page No. 9
pooling order must, when produced, be deemed for all purposes to have been
produced from such tract by a well drilled thereon. For the purposes of this section
and section 38-08-10, any unleased mineral interest pooled by virtue of this section
before August 1, 2009, is entitled to a cost-free royalty interest equal to the acreage
weighted average royalty interest of the leased tracts within the spacing unit, but in
no event may the royalty interest of an unleased tract be less than a one-eighth
interest. An unleased mineral interest pooled after July 31, 2009, is entitled to a
cost-free royalty interest equal to the acreage weighted average royalty interest of
the leased tracts within the spacing unit or, at the operator's election, a cost-free
royalty interest of sixteen percent. The remainder of the unleased interest must be
treated as a lessee or cost-bearing interest.
2. Each such pooling order must make provision for the drilling and operation of a well
on the spacing unit, and for the payment of the reasonable actual cost thereof by the
owners of interests in the spacing unit, plus a reasonable charge for supervision. In
the event of any dispute as to such costs, the commission shall determine the
proper costs. If one or more of the owners shall drill and operate, or pay the
expenses of drilling and operating the well for the benefit of others, then, the owner
or owners so drilling or operating shall, upon complying with the terms of section
38-08-10, have a lien on the share of production from the spacing unit accruing to
the interest of each of the other owners for the payment of the owner's or owners'
proportionate share of such expenses. All the oil and gas subject to the lien must be
marketed and sold and the proceeds applied in payment of the expenses secured by
such lien as provided for in section 38-08-10.
3. In addition to any costs and charges recoverable under subsections 1 and 2, if the
owner of an interest in a spacing unit elects not to participate in the risk and cost of
drilling a well thereon, the owner paying for the nonparticipating owner's share of the
drilling and operation of a well may recover from the nonparticipating owner a risk
penalty for the risk involved in drilling the well. The recovery of a risk penalty is as
follows:
a. If the nonparticipating owner's interest in the spacing unit is derived from a
lease or other contract for development, the risk penalty is two hundred percent
of the nonparticipating owner's share of the reasonable actual costs of drilling
and completing the well and may be recovered out of, and only out of,
production from the pooled spacing unit, as provided by section 38-08-10,
exclusive of any royalty or overriding royalty.
b. If the nonparticipating owner's interest in the spacing unit is not subject to a
lease or other contract for development, the risk penalty is fifty percent of the
nonparticipating owner's share of the reasonable actual costs of drilling and
completing the well and may be recovered out of production from the pooled
spacing unit, as provided by section 38-08-10, exclusive of any royalty provided
for in subsection 1.
c. The owner paying for the nonparticipating owner's share of the drilling and
operation of a well may recover from the nonparticipating owner a risk penalty
for the risk involved in drilling and completing the well only if the paying owner
has made an unsuccessful, good-faith attempt to have the unleased
nonparticipating owner execute a lease or to have the leased nonparticipating
owner join in and participate in the risk and cost of drilling the well. Before a
risk penalty may be imposed, the paying owner must notify the nonparticipating
owner with proof of service that the paying owner intends to impose a risk
penalty and that the nonparticipating owner may object to the risk penalty by
either responding in opposition to the petition for a risk penalty or if no such
petition has been filed, by filing an application or request for hearing with the
industrial commission.
__________________
Note: These matters are complex and your friend should seek advice from an attorney. Based on what I know now about the NDIC's ultra vires practice of establishing oversized spacing units and how that practice impairs the rights of mineral owners, etc., I would not lease to anyone.
Thanks I’ll pass this on to him !
charles s mallory said:
Norann:
I would first suggest that the individual contact Hess Corporation and get further details regarding this offer. It has been my past experience that a landman or company representative contacts the mineral rights owner by phone. I am surprised if this is actually Hess Corporation doing business in this manner. As far as the "participate" area, sounds very fishy. Again, I would contact Hess and see if this is really legit.
DG said:
This sounds like your friend is currently unleased and that the operator intends to drill a well on mineral acres that your friend has an interest in. Is this in North Dakota? If so, here is a link to ND statutory law:
http://www.legis.nd.gov/cencode/t38c08.pdf
Copy and paste from link:
38-08-08. Integration of fractional tracts.
1. When two or more separately owned tracts are embraced within a spacing unit, or
when there are separately owned interests in all or a part of the spacing unit, then
the owners and royalty owners thereof may pool their interests for the development
and operation of the spacing unit. In the absence of voluntary pooling, the
commission upon the application of any interested person shall enter an order
pooling all interests in the spacing unit for the development and operations thereof.
Each such pooling order must be made after notice and hearing, and must be upon
terms and conditions that are just and reasonable, and that afford to the owner of
each tract or interest in the spacing unit the opportunity to recover or receive, without
unnecessary expense, that owner's just and equitable share. Operations incident to
the drilling of a well upon any portion of a spacing unit covered by a pooling order
must be deemed, for all purposes, the conduct of such operations upon each
separately owned tract in the drilling unit by the several owners thereof. That portion
of the production allocated to each tract included in a spacing unit covered by a
Page No. 9
pooling order must, when produced, be deemed for all purposes to have been
produced from such tract by a well drilled thereon. For the purposes of this section
and section 38-08-10, any unleased mineral interest pooled by virtue of this section
before August 1, 2009, is entitled to a cost-free royalty interest equal to the acreage
weighted average royalty interest of the leased tracts within the spacing unit, but in
no event may the royalty interest of an unleased tract be less than a one-eighth
interest. An unleased mineral interest pooled after July 31, 2009, is entitled to a
cost-free royalty interest equal to the acreage weighted average royalty interest of
the leased tracts within the spacing unit or, at the operator's election, a cost-free
royalty interest of sixteen percent. The remainder of the unleased interest must be
treated as a lessee or cost-bearing interest.
2. Each such pooling order must make provision for the drilling and operation of a well
on the spacing unit, and for the payment of the reasonable actual cost thereof by the
owners of interests in the spacing unit, plus a reasonable charge for supervision. In
the event of any dispute as to such costs, the commission shall determine the
proper costs. If one or more of the owners shall drill and operate, or pay the
expenses of drilling and operating the well for the benefit of others, then, the owner
or owners so drilling or operating shall, upon complying with the terms of section
38-08-10, have a lien on the share of production from the spacing unit accruing to
the interest of each of the other owners for the payment of the owner's or owners'
proportionate share of such expenses. All the oil and gas subject to the lien must be
marketed and sold and the proceeds applied in payment of the expenses secured by
such lien as provided for in section 38-08-10.
3. In addition to any costs and charges recoverable under subsections 1 and 2, if the
owner of an interest in a spacing unit elects not to participate in the risk and cost of
drilling a well thereon, the owner paying for the nonparticipating owner's share of the
drilling and operation of a well may recover from the nonparticipating owner a risk
penalty for the risk involved in drilling the well. The recovery of a risk penalty is as
follows:
a. If the nonparticipating owner's interest in the spacing unit is derived from a
lease or other contract for development, the risk penalty is two hundred percent
of the nonparticipating owner's share of the reasonable actual costs of drilling
and completing the well and may be recovered out of, and only out of,
production from the pooled spacing unit, as provided by section 38-08-10,
exclusive of any royalty or overriding royalty.
b. If the nonparticipating owner's interest in the spacing unit is not subject to a
lease or other contract for development, the risk penalty is fifty percent of the
nonparticipating owner's share of the reasonable actual costs of drilling and
completing the well and may be recovered out of production from the pooled
spacing unit, as provided by section 38-08-10, exclusive of any royalty provided
for in subsection 1.
c. The owner paying for the nonparticipating owner's share of the drilling and
operation of a well may recover from the nonparticipating owner a risk penalty
for the risk involved in drilling and completing the well only if the paying owner
has made an unsuccessful, good-faith attempt to have the unleased
nonparticipating owner execute a lease or to have the leased nonparticipating
owner join in and participate in the risk and cost of drilling the well. Before a
risk penalty may be imposed, the paying owner must notify the nonparticipating
owner with proof of service that the paying owner intends to impose a risk
penalty and that the nonparticipating owner may object to the risk penalty by
either responding in opposition to the petition for a risk penalty or if no such
petition has been filed, by filing an application or request for hearing with the
industrial commission.
__________________
Note: These matters are complex and your friend should seek advice from an attorney. Based on what I know now about the NDIC's ultra vires practice of establishing oversized spacing units and how that practice impairs the rights of mineral owners, etc., I would not lease to anyone.
Yes, it is in North Dakota. Thank you for your information, I will pass this on to him also !
You might check to see if there is already a well and if there is, how it's production looks. It might improve your bargaining position. If there is already a good well, they might not tell you. It's happened to me and I've seen at least one other person post about it. RWK
It sounds like they received an oil and gas lease offer on their mineral interest or an offer to participate whereby rather than just receiving a 1/4 or less royalty plus other terms of lease offer, as a participant if production is obtained one receives 100 percent of their interest but also bear expenses in the drilling and maintenance of well. If it is a dry hole, they receive nothing. This is a standard industry practice made by the company/operator on an unleased minerals prior to drilling the well. You either opt to lease, participate or may be force-pooled in some states. It certainly does not sound suspicious.
Thanks Stephanie for your responce, no one has mentioned offers to paricipate. Would you condsider to participate ? this is new to my friend and he has no idea how to proceed with this offer, as he inherited this land.
Stephanie Wilbanks, CPL said:
It sounds like they received an oil and gas lease offer on their mineral interest or an offer to participate whereby rather than just receiving a 1/4 or less royalty plus other terms of lease offer, as a participant if production is obtained one receives 100 percent of their interest but also bear expenses in the drilling and maintenance of well. If it is a dry hole, they receive nothing. This is a standard industry practice made by the company/operator on an unleased minerals prior to drilling the well. You either opt to lease, participate or may be force-pooled in some states. It certainly does not sound suspicious.
I would not recommend participating to an inexperienced and unknowledgable mineral owner unless they had someone highly knowledgable and familiar with company and area. I would recommend entertaining the lease offer. Typically a companies first offer is not the top terms they have budgeted. They need to go on a fact finding mission to determine what leases go for in that area. Then make a reasonable counter-offer to the company. I am unfamiliar with the area. Perhaps you can find someone on here who knows.
Also when you find out what the mineral acres leased for you will find out who they leased to. You might do better requesting lease offers from many different co’s. I hope you checked to see if there already was a well or not. It happens that they drill wells before they find everyone. In my limited experience recieving an afe with a lease offer means they have drilled, are drilling, or planning to drill as soon as possible. You have 30 days from the recipt of the afe to decide if you want to participate or not. In my opinion you need to front burner this and get as many offers as you can before your options shrink. RWK
What if a mineral rights owner decides to participate in a well and invests his money towards that operation. First, what does this investment include normally, second, if no well is drilled does the ower earn any type of interest for his investment and third, has this practice of “participating” been beneficial to the mineral owner?
By law Hess has to offer your friend the chance to participate as an unleased mineral owner by paying his proportionate share of the well costs.
I have received many lease offers not accompanied by an afe. The ones I received with an afe concerned an existing well, or a well in the process of drilling. If they can lease you before a well is drilled they don’t have to offer participation. You may already have a well.