Thanks for your reply; our attorney advised us to wait until the oil company recoups their drilling costs, then become a participating member; not become one right up front as we do not have the capitol. That is a choice, correct? If I understand you correctly, we perhaps are not high priority for drilling if we are not leasing up front? What would be our best option to make the most money, if a well is successful?
The four choices were were given were to do nothing, to lease the mineral rights, to become a participatant and have to come up with money for the costs, or to wait until the operator gets back their costs and then participate. I wish I was more knowledgeable in all this.
r w kennedy said:
When the operator is ready to drill a well on lands spaced with yours, you will receive an authorization for expenditure. I have several. You will have 30 days to express your desire to participate, or not, as the case may be. That isn't alot of time to raise money. If you intend to participate I suggest you have the capital lined up ahead of time. If you do not lease, or participate, you will become a carried interest and face a 50% penalty in addition to your portion of the costs of the well. If you have 200 net acres in a 1280 spacing and won't lease, you probably aren't a high priority in the drilling schedule. If you lease, the operator gets 80% of your oil cheaply. If you participate the operator gets a cheaper, if less profitable well. If you are carried interest, the operator assumes almost all the risks and has their earning potential drastically lowered for your acres. Operators don't drill wells to earn the 50% penalty of your portion of the cost of the well, they expect to make X times of the cost of the well or they wouldn't drill it. Being carried interest in ND, you will also receive a 16% royalty or the weighted average of what everyone else in the spacing leased for, whichever the operator elects, from barrel one. The other 84% of your oil will go to pay off the well and penalty. Do alot of homework and good luck with whatever you decide.