Non-consent decision

About a year ago, I decided to go non-consent on a well that was being opened again in McKenzie County. I only own 2.12 mineral acres. Received my first royalty statement and check covering 18 months for $198. I just received a letter again from North Range Resources, LLC with statements of revenue for the months of August, September, and October 2018. The following statement is lifted from their letter: “Because you are considered non-consent in this well, you will continue to receive royalty payments until the operator has recovered their cost, at which time you will be deemed a working interest. At the time you become a working interest partner, we will send you a Joint Operating Agreement (JOA) for signature. This JOA outlines your responsibilities as a working interest partner. North Range Resources, LLC will then begin sending you a Joint Interest Billing (JIB), showing your prorated share of the expenses along with your prorated share of the revenue from production. All working interest owners are required to have operator’s insurance to cover their prorated share of the operations. This may take some time to get in force, so North Range suggests that you contact an insurance company and obtain information on getting the Operator’s insurance in place. North Range Resources, LLC is still open to the options of either leasing or purchasing your mineral rights in the tracts described below.” My question is: How serious should I be about the operator’s insurance that they mentioned, and if folks on this forum can advise me on that or any other concerns I should have. This is all new to me. An attorney in ND who is involved in oil leasing had suggest I just do a non-consent because of the small amount of mineral acres that I own. Any advice is much welcomed and I am thankful for. R Ward

Sounds like they are attempting to scare you into leasing. By the amount of the initial payment check you received, that well is never paying out. But even if it does, I believe you have the option to elect to be covered by the operator’s insurance.

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Non-consent can become scary if you can’t accept the risks. Leasing is usually the preferred option.

I have the same problem with the other comments with regard to operator’s insurance. Working interest owners are not the same as operators. I’ve been a working interest owner for 4-5 years, and have heard no mention of insurance. I, too, think it’s a pressure tactic. I’m also with an earlier reply that says the first check was a bit dinky and at that rate you will never re-pay your share of the drilling costs. According to North Dakota Century Code 38-08-09.7, you can give your ownership back to the driller any time you choose to do so.

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Thanks everyone. The Authorization For Expenditure (AFE) presented to us in March 2017 for the small amount of mineral acres we own was $1423.25. A worse case scenario was likely no more than twice that, as estimated by a fellow member of this forum back then. Does that mean that is the amount that needs to get covered by my royalties plus the 50% penalty? Seems like insurance to cover that small amount of liability and ownership would be minimal, if it is even worth insuring for. Any more information on this insurance thing would make me feel more secure in whatever I do regarding that when the time comes. Do I have to sign the JOA if or when the time comes? I know this is “small peanuts”, but I do appreciate all the help/advice. Bob

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I have 1.96 net acres, just a bit less than you. I participated in the drilling, and wrote a check up front for somewhere around $15,000. That was at least 5 years ago, and since I suspect drilling costs have gone way down from there, the amount subject to the 50% penalty is a number probably in the $10,000-$15,000 range for your well. Just a guess. Hope you’re aware that they had to notify you up front that they were going to add the 50% penalty. If they failed to do that, you should not have to pay the penalty - the best of all worlds: no large amount up front, and no penalty for having to do so. It makes no sense to me that you would be forced to sign a JOA, since the ND Code says you can walk away from the deal anytime you want. If you signed a JOA, that wouldn’t be the case. Ergo, inconsistent, and probably not true.

Greetings Ed. The Election Letter I signed back in April of 2017 was indicated: “Not to participate and am aware I may be subject to compulsory pooling and the risk penalty associated therewith.” The cover letter stated: “If you do not wish to participate in the operations outlined above, please be advised that you are subject to compulsory pooling and risk penalty associated therewith as provided for in NDCC 38-08-08.” There is no mention, that I can see of the amount of the penalty percentage. The estimated cost of the operations with the well was put at $1,502,950.00.