We have a mineral rights in divide county nd. A new offer was just made of 3/16 and 600 per acre. how is this comparing to other companies?
Depending on the precise area and who you are dealing with, you can probably negotiate at least the bonus up more. I have had many people who were talking to Continental and Baytex tell me they were offered $800 per acre and 3/16. If it's Irish Oil that is trying to lease you the terms in their standard lease are horrible to the point I would rather be force pooled even if it meant no bonus and lower royalty. The irish oil lease that someone sent me had about 10 clauses designed for no other purpose than to put you at a greater disadvantage than the usual bad lease when the operator does something wrong, usually not paying you. It does not matter how much an oil company offers you if they don't pay it and you can't make them pay it because it would cost 100 times as much in legal fees as what they owe you. I suggest you look on the Divide county group which you can find under groups near the top of this page. More activity usually means you can ask more for your lease, you can check activity on the GIS map at the NDIC O&G Division website. If you feel comfortable posting your legal description I will check production on any nearby wells for you because the better the production, the more you could possibly negotiate. I have friends who with the best information I could give them and 4 months of hard negotiation, eventually dealing directly with the operator and not their landman company, negotiated a lease up from $800 bonus/acre and 3/16 to $900 bonus/acre and 19%, with Baytex/Irish Oil. Not a big movement on the money but they did get many detrimental clauses struck and a few protective clauses included which could be far more valuable. If you are ever going to need a lawyer, it's better to pay one before you sign something bad, it will be alot more costly later, if a lawyer could help you at all. Good luck.
cam:
rw kennedy offers very good advice but as he states, it would be helpful to post your exact location (Township/Range/Section). By providing this info, one can determine the nearest production to your mineral area as this will be a major factor in your lease negotiations. The main thing is not to get in a hurry and do the proper research before making the final decision.
Kudos to Kennedy for telling it like it really is. It is the terms of the lease that are most important to you in protecting a royalty right. (Which is all you have when you sign a lease these days.) However, the laws and regulations, if understood and used correctly, provide the mineral owner with far more options than to lease or not lease with a land company. Location of your minerals is very important in working a deal on your minerals. Supply and demand will always work for you if you understand both and how your minerals fit into the equation. I see some operators there selling out and others canceling permits once they hold the acreage they have earned under the leases. I have recommended that my clients in Divide decline lease offers from land companies in favor of making better deals with the good operators when the operator's demand for minerals is realized. In all cases, the offers to lease were significantly higher than your offer but perhaps their minerals are better situated geologically.
If you have significant amounts of acreage you owe it to yourself and heirs to make the best deal you can. You may only get one chance in the Bakken development.
Mr Hutchinson,
Could you elaborate further on your statement:
“You may only get one chance in the Bakken development.”
I have several holdings within or on the fringes of the Bakken area.
Thank You in advance for your reply
Respectfully
Pam Peterson
Gary L. Hutchinson said:
Kudos to Kennedy for telling it like it really is. It is the terms of the lease that are most important to you in protecting a royalty right. (Which is all you have when you sign a lease these days.) However, the laws and regulations, if understood and used correctly, provide the mineral owner with far more options than to lease or not lease with a land company. Location of your minerals is very important in working a deal on your minerals. Supply and demand will always work for you if you understand both and how your minerals fit into the equation. I see some operators there selling out and others canceling permits once they hold the acreage they have earned under the leases. I have recommended that my clients in Divide decline lease offers from land companies in favor of making better deals with the good operators when the operator’s demand for minerals is realized. In all cases, the offers to lease were significantly higher than your offer but perhaps their minerals are better situated geologically.
If you have significant amounts of acreage you owe it to yourself and heirs to make the best deal you can. You may only get one chance in the Bakken development.
Gary L Hutchinson
Minerals Management
Pamela,
I sent you a "friend" request so you can tell me your specific situation and I can respond with what I see going on in the Bakken area as it may apply to you and what you can guard against when granting new leases.
Generally speaking, the Bakken is an unique and unusual oil deposit that will be developed over the next 60 + years. It is a somewhat consistent and homogeneous, and mature source rock. Well completions are in the 90% pus range vs. 12% for conventional oil fields drilled vertically. The leases that I have seen proposed are strongly in favor of the lessee/operator being able to hold and book the reserves for long periods of time. The world class operators in the Bakken are protecting their shareholders for the long term as they play the Supply and Demand game for oil as it should be. Note the huge (1280 acre and asking for more) spacing units and unilateral rights to extend lease terms as a couple of examples of the strategy to prove and hold reserves almost indefinitely. The lease bonus structure is based on the old days but for 10 year leases not 3 year leases. Further, current lease offers indicate a high royalty but when one understands the measurement and payment of the royalty, it becomes apparent that it is part true royalty and part net profits if the lessee is lucky. Consequently, if a naive mineral owner expects business as usual as they may have grown used to in the last 30 years, they will be sadly mistaken. It is a new game in the Bakken. I don't fault the operators, they are primarily in the business of mineral extraction at a profit and have proven reserves on the books for perpetuity of the company. The good operators have come to the realization that Bakken development is more akin to a large mining operation where development costs are large multiples of normal and net profit expectations are lower than they are used to but sustainable for a long time. Consequently they must keep the cost of proving reserves at a minimum (including leasing costs). Some very good exploration companies in the Bakken know that they are exploration companies and not in the area for the long term but following their business plan, will prove up and sellout to the long range development companies. They use the earned capital to do what they do best, find oil and gas. God bless those high risk takers. However, in order to maximize their sale price, they will buy up all the cheap leases they can for as long as they can thereby enjoying the profits given up by the unknowing mineral owner who doesn't know where they stand in the supply and demand equation.
Fortunately, in North Dakota, the penalties for refusing to lease or being ignored are small and the advantages of controlling future profits from mineral development are good. But you better know what you are doing, especially if your acreage is small. Larger acreage mineral owners have advantages that will allow them to circumvent forced pooling penalties in a way that retains control and at the same time helps the operators that are in the Bakken to stay. Again, the mineral owners had better know what they are doing and have a good grasp on how they fit into the supply and demand forces of mineral exploitation.
Naturally, it is in the operators' best interest to provide a " one size fits all" lease document so it is up to a mineral owner to know what he or she wants and have the background to get it or make a different deal. With the economic forces at work in the unique Bakken, the mineral owner may only get one chance at documenting her expectations from a lease or retaining control to play another day and in another way.
Hope this elaboration helps. You may contact me with specific applications at gary.hutchinson@comcast.net if you desire. It is just what I do.
Pamela F Peterson said:
Mr Hutchinson,
Could you elaborate further on your statement:
"You may only get one chance in the Bakken development."
I have several holdings within or on the fringes of the Bakken area.
Thank You in advance for your reply
Respectfully
Pam Peterson
Gary L. Hutchinson said:Kudos to Kennedy for telling it like it really is. It is the terms of the lease that are most important to you in protecting a royalty right. (Which is all you have when you sign a lease these days.) However, the laws and regulations, if understood and used correctly, provide the mineral owner with far more options than to lease or not lease with a land company. Location of your minerals is very important in working a deal on your minerals. Supply and demand will always work for you if you understand both and how your minerals fit into the equation. I see some operators there selling out and others canceling permits once they hold the acreage they have earned under the leases. I have recommended that my clients in Divide decline lease offers from land companies in favor of making better deals with the good operators when the operator's demand for minerals is realized. In all cases, the offers to lease were significantly higher than your offer but perhaps their minerals are better situated geologically.
If you have significant amounts of acreage you owe it to yourself and heirs to make the best deal you can. You may only get one chance in the Bakken development.
Gary L Hutchinson
Minerals Management
Ms. Peterson, I won't speak for Mr. Hutchinson who is a professional of great experience, but I don't think you need his credentials to see that the maim focus on the Bakken is to get all productive acreage held by production (HBP). It only takes one well to hold 1280 acres that it could not efficiently drain but it could hold the acres for 30 years, during which time a second well can be drilled which will extend the time of the primary phaze of production to as much as 50 years possibly longer because the Bakken and Three Forks/ Sanish are not the only formations that could be commercially produced. When primary production dwindles, secondary production will begin with field unitization with waterflooding [ which has already been tested but did not work well ] or CO2 injection that I'm fairly certain would work but is more expensive. That's the long answer, the short answer is if they get production you will probably be tied up for 50 to 75 years and unlikely to see another lease cycle.
Operators are drilling the fringes still, getting wells that they produce for one month and then allow two months for oil to migrate to the wellbore so they can produce for another month. In the past, operators did not favor such areas. Long time to pay out and marginal profit are not attractive. The one reason I can think of to keep drilling such wells, and they are still drilling them, is to hold the acres HBP for as long as possible. The operators literally own the minerals as long as he can keep production going. As long as that meager well can break even, pay for that spacing, the operator may not have made any cash but he has earned a valuable asset in proven reserves. Great strides have been made in the last 10 years in how to better production from the Bakken. I am certain that there will be more advances in the next 20 years. The difference between then and now is that there will be no new Bakken land rush because just about anything worth drilling will already have long since been held by production.
An example of the value of a marginal spacing, suppose the well cost was 6 million, the operator would after taxes expenses including paying the royalty owners have to produce 100,000 barrels at what my oil is selling for today. It's not a stretch to believe that one of these cheap wells could do that in 15 to 20 years. The operator has broke even or started making a slight profit, the mineral owners have made a small amount of money. If the operator decides to sell the well and the rights to produce the minerals in the spacing for 5 million dollars, the operator has made 5 million dollars, how much of that does the mineral owner get? $0, nothing, zip, nada. Going non-consent in such a well probably wouldn't pay off for 30 years or more so that is not a viable option, and I don't recommend you invest your money and participate in such a well. I think an investment in staple food stocks would be alot better investment over a period of 30 or 40 years than a marginal well. Just as an example, I'm not an investment councilor.
I am sure some leases will expire, and there may not be any immediate offers to lease again, but if that spacing will support a well to break even or marginal profit, someone will be back for it, possibly for less money and almost certainly for less royalty. We are talking about the fringe, there is probably four times as much of it as there was of the core areas that started the frenzy. There is no hurry, the operators can pick and choose now. There is enough fringe acres that if the mineral owners won't lease cheap and for less royalty, those in the next spacing will or you can lease just enough and force pool the rest. The wells drilled are going to be relatively cheap (6 million or less for 2 mile lateral vs 10 million), fewer frack stages, sand frack with no ceramic. Frankly, I wouldn't like the thought of such a well on my acres, but if the alternate choice was no well at all, you have a decision to make.
I can't seem to stop writing books lately. I hope this helps.
Ps. Mr. Hutchinson writes faster than I do! I can't fault his analysis anywhere.