Non Consent vs Leasing? Oil is flowing need advice in ND

My family recently found out about mineral rights they are receiving via a death in the family...because the family memeber did not do a lease and the well was built and the oil is flowing we are in a position to decide if we would like to continue down the non concent route or the lease route...I understand the value $$ of leasing but what I dont know is the apple to apples comparison to of non concent partnership. What is the if volumn is equal what is the difference in pay one vs the other? Just a note I am just learning about oil/gas/water. I have caught up quickly on the leasing but now need the non concent position help.

Simple answer. Call the well operator and ask what they'll offer for a lease. How much bonus, and how much in cost free royalty (absolutely no deductions). If they offer attractive terms you might consider it. The lease is the simplest way to proceed.

As for going non-consent, this may be the more lucrative way to proceed. Though it comes with additional headaches. If considering it, the first thing I'd want to know is how much is the well producing. If it's a big well you might cover your share of the drilling expense, plus the additional 50% penalty, in a relatively short period of time. Once the operator recovers those costs your income would jump dramatically. On the other hand, if it is a modest well you may be waiting decades to get the drilling and penalty covered. Now see what others may suggest on your situation. Good Luck.

Ok so far lease offer was $1000 per acre and 20% roylaties to lease....but I know there is room for negociating also I have to wait until the 15th of April for the report to come out... and the report will only have a few days of production.....I have talked with oil company and they made it sound way more attractive to keep the non concent route and said it was a pretty decent well...they just didnt give me actual numbers...Its been tough to get ahold of the oil company people...I know that it has been crazy with oil boom in ND. I will say they have been really pleasant to talk to and very helpful. It was a lot to take in at first due to having no backround in Oil and Gas. I do own my own company and other real estate as well as having a full time job in finance so the numbers come easy to me but I really want to understand how the non concent ins and outs. I can put all the responsible protection in place for the non concent route and will get an attorney to make sure its all set up correctly. I just dont know if we are talking x2 $$ of x10 $$ for non concent. I do know that there is a portion royalty pay out until 150% of well cost is met with production....true numbers will tell. Big question how many barrels does it take to pay for a typical well?? That s the money question. BTW thank for the responce.

It's impossible to get actual numbers to compare. You need to estimate virtually everything (several variables). First well costs vary from $7MM to $12MM depending upon the operator and the location. I'm going to provide a example picking a random amount for your NET interest. Though the percentages will remain the same regardless of your actual net acres.

IF YOU OWN own 128 net acres under a 1,280 unit you have a 10% interest. So your share is $700,000 to $1,200,000. Then add the 50% penalty so your share of expenses are now $1,050,000 to $1,800,000.

WHEN YOUR WELL produces 150,000 bbls your share would be 15,000 bbls. IF IT SELLS AT $80/bbl your 15,000 bbls brings in $1,200,000 gross. Remove ND's production tax (12%) and you have about $1,050,000 revenue to cover the cost of a "cheap" well. To cover the cost + penalty on an "expensive" well you'll have to wait until your well produced 250,000 bbls. In either case you'll also have to cover the well's operating expenses too, so you'd need even higher production.

This is just to get you started. The very big Bakken wells may hit those numbers (150M & 250M bbls) within a couple of years. The typical Bakken well may take ten or fifteen years to hit the higher number. Also there will be many Bakken wells which may never hit 250,000. Crunch the numbers and guess how long your well will take for 16% (non-consent) now to catch up to 20% or 22% now (with lease, and the bonus dollars).

We are at 80 Acres...and so here is my thought depending on the production report we may see soon that might help our decision...the other thing is that they want to put in 7 more wells in our section/sections. My understanding is that if we choose to non consent 1st well we can choose to lease or non consent on each moving forward but once we lease anything after will be leased...to diversify the risk. Obviously it depends on production for the non consent,

1. leases arent they renegociated every few years and does that mean a bonus everytime?

2. Depending on if the well is a really favorable one then as long as there is a little $$ coming in and we have to wait 5-10 yrs for the fabulous pay out and having more wells with leases may be work. I that correct?

I'm not sure I fully understand what you've posted but if so...

Regardless of if you have 8, 80, or 800 net acres the ratios shown above remain constant. With your 80 you need about 150M bbls to 250M bbls of production for the operator to recover your cost + penalty. So look at all nearby wells to see how long they've taken to reach those numbers (or how much they produced in their first few years). Use that to gauge how fast or slow you might hit those 150/250 bbl benchmarks.

Leases are for a set number of years (typically 3 or 5). HOWEVER, once your leased minerals begin to produce the lease remains in effect for as long as the property continues producing. So even a 3 year lease today may be in effect for the next fifty years! Since your property is already producing, your lease today will not be renogiated again. As a result, make sure you are comfortable with all the lease terms.

Yes, you may remain non-consent on this existing well then sign a lease which pertains to any future wells. Though your lease language must state that it specifically excludes that existing well. Otherwise the current well and any future ones are all covered by the lease.

That strategy would allow you to keep 8/8th of that well (when/if the cost/penalty is covered), and collect a bonus payment today with royalty on any future wells. This may work out alright, but I'd refer back to what I posted above... will that well ever pay off the cost + penalty, and if so, how long might it take? It may be worthwhile but I feel the well production would be the key consideration. Until it is "paid off" a 20% royalty (lease) is 25% more than a 16% royalty (non-consent). In the end it is just a judgement call. Good Luck

Ok I get what your saying...and this is the tough thing...the wells production just started the last few days of February and We will have to wait til mid May to see if its a decent producer....I will have to take in the numbers and work them at you were stateing above. Another tough problem there are not many wells near us at all and we may be one of the first to get up and running possibly why they want to get on the 7 additional before the others get into the area as well.....I really do appreciate all your help. Really the decision is how good is this well and how quickly are the others going to get put in....Oh if I had a crystal ball.

No crystal balls allowed, just best guesses. :)

Though don't worry too much about it. Make your best guess on the data. Then crunch the numbers.

An intent to drill 7 additional wells may or may not come to pass. Nor do you know how long it will take if they do drill them. If you're in an area relatively new to drilling typically they won't drill any additional wells on your tract until they've drilled at least one on their other nearby holdings (to hold those acres by production). However, if the existing well is a great one they may punch another quickly. Again don't worry about this. You don't control it. You can't control it. They'll drill when they drill (if ever). The question at hand is the existing well and potential bonus money if you lease all or some, not what the future wells might do.

Since production just began on your well you have to make a guess. Gather what data is out there on other wells in the neighborhood. Remember production declines rapidly so a 500 bbl well today may be 150 bbls next year, and so forth. If the few wells near you are starting with an IP of 300 you may be a very long time coming to reach pay off. If those wells are showing 1,500 or 2,000 bbl IP's then it is another story. Don't know that I can add much more. Good Luck on your decision. I suspect you'll be fine either way.

Would you mind telling what State and County your property is in?

Divide county ND