Not sure how to read the NDIC GIS map

Oil and Gas Leasing Help
1

I own mineral rights on approximately 158 acres in Williams County, ND. Township 154 North, Range 100 West, 5th P.M. (not sure what the 5th P.M. means), lots 1,2,3,4, of section 6. I am trying to find out if there are any active wells nearby or if they are already drilling. The land has been leased for five years and is up at the end of 2013. We haven't received any payments and have not been notified that there are any wells on our mineral righted land. When I look at the GIS map, I'm not sure what I am seeing. I think I see some abandoned wells, several active wells and a confidential well in the section, but am not sure. Any help would be apprieciated. The lease is with Doyle Land Services, Park Energy, LLC. Thanks!

2

Hi Karla, I just took a look and your spacing sections 6 and 7 are clean, not even any old wells. A tip for using he GIS MAP is to just input the section ,township and range and click the zoom to section and the searched section should be green. The lots do not show up on the gis map.

Karla, your acres are in an active area with alot of drilling. There is a rig 4 miles east of you and another 5 miles east of you.

Karla, you are in a very good area and I know it well because my friend Andrew Babcock has acres within 2 miles of you to the east. You are not far from where the state leased some of their acres at auction for $11,000 per acre. You probably won't be able to ask $11,000 bonus but you might ask $5,500 acre and 23% royalty with no deductions except for taxes. You have Bakken, Three Forks formations potential and also Madison formation potential. A Bakken well in your area can easily produce 100,000 barrels of oil or more in a year. Sometimes alot more than 100,000 barrels in a year.

Andrew's well [4-9 spacing] is at 119,000 barrels after 10 months and the operator isn't pushing his well hard. The SJOL well [5-8 spacing], we call it slowjoy because it got off to a slow start just dribbling oil for the first 6 months but produced over 100,000 barrels oil in the next 9 months alone.

If your lease does expire, I would bargain hard and push the limits because if they don't want to meet my price they can force pool me and I will make even more money.

Good things are coming your way, it's inevitable. If someone drills your spacing and the have a mechanical failure [not likely] and lose the well, they will just say darn it and drill another one because that oil has to come out. I hope you have alot of acres although even a few in that area would still be nice.

In this case the old saying that good things comr to those who wait, is quite literally true. Wait for the lease to run out or a well to be drilled, it's money either way. If the lease does expire, start thinking htghway robbery, you do have the upper hand, ask for alot more than they really want to give. In that area they could pay you $5,500 per acre and 23% royalty and they would still make 3 times as much as you off of your oil. If I were them, I'd pay you because I would still make a heck of alot more money at that rate than if I force pooled you.

3

Thank you for your reply. That is encouraging news! I have 158 acres... I know so little about this that I am unsure if that is a really small amount or if that is good! If they do allow the lease to expire (Doyle Land Services) then I assume someone else will likely approach me? In other words, will I need to look for someone or will they most likely come to me?

4

Karla, 158 NET mineral acres would be millions of dollars worth, $7,900,000 if your wells come in poor for the area. If you had 158 GROSS acres that you had only 10 NET mineral acres of, it could still be worth a million dollars but I would just assume [ for poor for the area wells ] $500,000.

If you leased 10 net acres for say $5,000 per acre [which would be alot higher than they will offer and you will have to negotiate hard for] with 10 net mineral acres you would get $50,000 up front and a usual good offer of 20% royalty on $500,000 over 30 years time would be $100,000 , less taxes of 11.5%, less ND state income tax, less federal tax, less your home state income tax if any, less any post production charges against your royalty that the operator can deduct. People are frequently surprised/amazed/dismayed by how little they realise from LEASING their minerals.

So a 10 NET acre lease with $5,000 per acre royalty that they made you fight for, you could receive $50,000 up front and $60,000 to $70,000 after taxes/charges, over 30 years, for a total of 110-120 thousand dollars total.

If you have 10 net mineral acres and didn't lease you could make $350,000 from the same well after cost recovery, risk penalty and expenses.

Karla, if you actually do have 158 net acres, you need to find someone with whom you can do a farm-out deal because no operator in their right mind wants to force pool and carry 158 non-consent acres. You would literally end up owning 10% of their oil well in a great area, great in terms of a Bakken scale of 1 to 10, it's a 9.3. It's a great opportunity, I hope you make the most of it.

Karla, if your lease expires, you won't have to go looking for someone to lease you. Your present lessee is probably not an operator and does not drill wells, probably doesn't have largest leasehold in the 1280 acre spacing. Your current lessee is probably cursing right now because his lease is getting close to expiration and he can't participate in a well for your acres or flip/sell your lease to someone else for a profit.

5

Where/how do I know what the NET acreage is? On the oil and gas lease it says "said lands being described as Township 154 North, Range 100 West, 5th P.M. Lots 1 (40.62 acres), 2 (40.43 acres), 3 (40.26 acres), 4 (36.83 acres) of section 6 and containing 158.14 acres more or less. I don't see anything about Net acres. Thanks again for your help.

6

Karla, do you remember what amount bonus per acre you negotiated the lease for and how much the total bonus was? Perhaps you made a copy of the draft or check before you cashed it or still have the check stub? The lease offer letters for your present lease may contain net acre information.

Karla, the main thing if you can't determine your net acres is that they either will drill and you will eventually receive a division order that should tell you how many net acres the operator thinks you own. If your lease expires, the new potential lessees with probably tell you in the offer letters how many net acres they think you own. If you have the old letters or a copy of the payment instrument or stub from it, great, but if not they will be telling you soon anyway, so I'd try not to worry about it too much.

I guess the short reply is do you have anything that might help you figure it out, old lease letters or payment instrument stub?

7

So....we really do own 158 NET mineral acres, (your comment below says that would be worth millions of dollars) but now, because of the large spacing and other leases (which I don't understand either), we really will only see 2% to 4% percent of what our lease says? They can "hold" the lease because they have begun drilling and the lease is not expired so we will always be held to the 1/6th royalty amount, but why are we having to share the royalty amount? Do other people also hold mineral rights to our section? Sorry, I just have so much to learn!
r w kennedy said:

Karla, 158 NET mineral acres would be millions of dollars worth, $7,900,000 if your wells come in poor for the area. If you had 158 GROSS acres that you had only 10 NET mineral acres of, it could still be worth a million dollars but I would just assume [ for poor for the area wells ] $500,000.

If you leased 10 net acres for say $5,000 per acre [which would be alot higher than they will offer and you will have to negotiate hard for] with 10 net mineral acres you would get $50,000 up front and a usual good offer of 20% royalty on $500,000 over 30 years time would be $100,000 , less taxes of 11.5%, less ND state income tax, less federal tax, less your home state income tax if any, less any post production charges against your royalty that the operator can deduct. People are frequently surprised/amazed/dismayed by how little they realise from LEASING their minerals.

So a 10 NET acre lease with $5,000 per acre royalty that they made you fight for, you could receive $50,000 up front and $60,000 to $70,000 after taxes/charges, over 30 years, for a total of 110-120 thousand dollars total.

If you have 10 net mineral acres and didn't lease you could make $350,000 from the same well after cost recovery, risk penalty and expenses.

Karla, if you actually do have 158 net acres, you need to find someone with whom you can do a farm-out deal because no operator in their right mind wants to force pool and carry 158 non-consent acres. You would literally end up owning 10% of their oil well in a great area, great in terms of a Bakken scale of 1 to 10, it's a 9.3. It's a great opportunity, I hope you make the most of it.

Karla, if your lease expires, you won't have to go looking for someone to lease you. Your present lessee is probably not an operator and does not drill wells, probably doesn't have largest leasehold in the 1280 acre spacing. Your current lessee is probably cursing right now because his lease is getting close to expiration and he can't participate in a well for your acres or flip/sell your lease to someone else for a profit.

8

Karla, a section is one mile square and contains 640 net acres. You are 158 acres in a 2560 [aprox] acre spacing containing 4 sections. Everyone with acres in the 2560 spacing will receive royalty for the acres in the spacing whether the initial wells could drain their acres or not, all acres are considered equal. From the location of your two wells they are only going to be drilled in the two northern sections in an east to west direction, leaving the two southern sections untapped for the forseeable future when more wells are drilled. You have 158 net acres that would be a very significant fraction of a 1280 spacing about 1/8th but if you double the size of the spacing to 2560, your participation which determines how much royalty you get from the wells falls to 1/16. Your checks will essentially be half of what they should be until more wells are drilled in the the untapped sections, that have been leeching off of your royalty. If my experience is any example, it will take years.

Karla, if the NDIC O&G director can be believed it is going to take 48 to 96 wells to drain your 2560 acre spacing, and you are getting two wells. Your 2560 spacing is going to contain two completely untapped sections which do not even have approved locations to drill or permits. As I said before I have 6 1280 spacings that have one well each and the operator has not been back for 5 years to drill even a second well in any of them although they are in the core Bakken area also, have produceable Three Forks formation and from looking at the maps Tyler formation. Maybe my grandchildren will appreciate it but they are not born yet.

The millions of dollars worth estimation is of the value of the oil. Your lease at 1/6 of that would be worth considerably less. I used the number $7,900,000 X .1667 = $1,316,930, less taxes and post production costs, you may bank $1,000,000 over 30 years time. If you had never signed a lease you would receive 16% royalty from the very first barrel while waiting tor the well to pay out and the risk penalty to be retired, you might end up with 5 million over 30 years. Roughly 1M for your part of the 2 wells, 500k for the risk penalty 500k for operating costs leaves 5.9M but I'm throwing in a large 900k fudge factor just in case a well didn't go right and needed some work done, cost overrun or some thing of the sort. The oil produced pays for the well, whether you leased or not. I don't have the concept of 48 to 96 wells per 2560 acre spacing but I will have time to get used to it because it's going to be far far into the future before it happens.

To be as clear as I can, in a 1280 acre spacing with roughly 1/8 (160 acres) contribution for every 1 million dollars in sales your acres are attributed $125,000 X your royalty of .1667 = $20,837 before taxes and post production costs.

In a 2560 acre spacing with you contributing roughly 1/16 (160 acres) for every 1 million dallars in sales, $62,500 dollars would be attributed to your acres X your royalty of .1667 = $10,418 less taxes and post production costs.

It will get better as more wells are drilled but that is probably years away. I'm not just telling you this to make you unhappy. I think you have the right to know and also to know that the state of North Dakota actually colluded with the oil industry to do this, to get as many acres held by production with as few wells as possible. Why? So you wouldn't have the opportunity to lease again, for alot more money up front and for alot more money over time because royalty has been and still is rising in prime areas. Be sure to send the state a thank you letter.

9

When you said "158 NET mineral acres would be millions of dollars worth, $7,900,000 if your wells come in poor for the area" I like Karla also thought you meant if her well comes in poor her 158 acre would be worth $7,900,000 but your saying you meant that would be the total gross revenue from one 2560 spaced well over it's life? So by what you said about what the director said, at 48 to 96 wells and at $1,000,000 she banks over 30 years time per well, your saying her total revenue over time will be $48,000,000 to $96,000,000 and if so she will make (bank) $607,594 per acre... that's more than SIX HUNDRED THOUSAND per ONE acre, and that's if those 96 wells are poor wells.

That would make the operator making well over a half a Billion dollars in just that 158 acres.

10

Mr. Kennedy,

Is that 1,000,000 over 30 years (approx) for each well? If it is indeed for each well, then I can see why one would not ever sell the rights. If however, you are saying that it would be 1,000,000 over 30 years including all possible wells, then that leads me to another question. We have received an offer of 9,000 dollars per acre to sell and that amount would be 1,422,000. Why would we not want to sell if we are going to end up with about the same amount, but NOW, versus over 30 years time? I am guessing you did indeed mean for each well (which could be eventually between 48/96 wells). Again, forgive me for being so ignorant in all of this.


r w kennedy said:

Karla, a section is one mile square and contains 640 net acres. You are 158 acres in a 2560 [aprox] acre spacing containing 4 sections. Everyone with acres in the 2560 spacing will receive royalty for the acres in the spacing whether the initial wells could drain their acres or not, all acres are considered equal. From the location of your two wells they are only going to be drilled in the two northern sections in an east to west direction, leaving the two southern sections untapped for the forseeable future when more wells are drilled. You have 158 net acres that would be a very significant fraction of a 1280 spacing about 1/8th but if you double the size of the spacing to 2560, your participation which determines how much royalty you get from the wells falls to 1/16. Your checks will essentially be half of what they should be until more wells are drilled in the the untapped sections, that have been leeching off of your royalty. If my experience is any example, it will take years.

Karla, if the NDIC O&G director can be believed it is going to take 48 to 96 wells to drain your 2560 acre spacing, and you are getting two wells. Your 2560 spacing is going to contain two completely untapped sections which do not even have approved locations to drill or permits. As I said before I have 6 1280 spacings that have one well each and the operator has not been back for 5 years to drill even a second well in any of them although they are in the core Bakken area also, have produceable Three Forks formation and from looking at the maps Tyler formation. Maybe my grandchildren will appreciate it but they are not born yet.

The millions of dollars worth estimation is of the value of the oil. Your lease at 1/6 of that would be worth considerably less. I used the number $7,900,000 X .1667 = $1,316,930, less taxes and post production costs, you may bank $1,000,000 over 30 years time. If you had never signed a lease you would receive 16% royalty from the very first barrel while waiting tor the well to pay out and the risk penalty to be retired, you might end up with 5 million over 30 years. Roughly 1M for your part of the 2 wells, 500k for the risk penalty 500k for operating costs leaves 5.9M but I'm throwing in a large 900k fudge factor just in case a well didn't go right and needed some work done, cost overrun or some thing of the sort. The oil produced pays for the well, whether you leased or not. I don't have the concept of 48 to 96 wells per 2560 acre spacing but I will have time to get used to it because it's going to be far far into the future before it happens.

To be as clear as I can, in a 1280 acre spacing with roughly 1/8 (160 acres) contribution for every 1 million dollars in sales your acres are attributed $125,000 X your royalty of .1667 = $20,837 before taxes and post production costs.

In a 2560 acre spacing with you contributing roughly 1/16 (160 acres) for every 1 million dallars in sales, $62,500 dollars would be attributed to your acres X your royalty of .1667 = $10,418 less taxes and post production costs.

It will get better as more wells are drilled but that is probably years away. I'm not just telling you this to make you unhappy. I think you have the right to know and also to know that the state of North Dakota actually colluded with the oil industry to do this, to get as many acres held by production with as few wells as possible. Why? So you wouldn't have the opportunity to lease again, for alot more money up front and for alot more money over time because royalty has been and still is rising in prime areas. Be sure to send the state a thank you letter.

11

Joe, I said the value of the oil was worth $7,900,000 @ 500k barrels @ $80 per barrel and Karla's nearly 1/8 of a 1280 would be hold 7.9M worth of oil. 2 wells on a 2560 producing 500k barrels each should be equivalent, and there are two wells and yes, I can envision each well producing 2/3 of the average that is being talked about for eventual return for a Bakken well in a good area. If the operator was not expecting something like a $40 million worth of oil, they wouldn't be drilling such expensive wells. If you have a bone to pick with 48 to 96 wells per 2560, take it up with the director of the NDIC O&G, he said it, I'm just passing on what he said.

Joe, to be honest you need to show me where I said every well would do as well and produce 500k barrels. I'm talking about two wells in undepleated good area, it's you who is jumping to conclusions. Joe, if you remove from your post everthing you are infering that I said and leave everything I did say in any kind of context, you'd have a sentence and not a paragraph. "So by what you said the director said" Like I said Joe, if you have a bone to pick with the director over what he said, tell him, or make your own post about it.

Mineral Joe said:

When you said "158 NET mineral acres would be millions of dollars worth, $7,900,000 if your wells come in poor for the area" I like Karla also thought you meant if her well comes in poor her 158 acre would be worth $7,900,000 but your saying you meant that would be the total gross revenue from one 2560 spaced well over it's life? So by what you said about what the director said, at 48 to 96 wells and at $1,000,000 she banks over 30 years time per well, your saying her total revenue over time will be $48,000,000 to $96,000,000 and if so she will make (bank) $607,594 per acre... that's more than SIX HUNDRED THOUSAND per ONE acre, and that's if those 96 wells are poor wells.

That would make the operator making well over a half a Billion dollars in just that 158 acres.

12

Karla, my numbers were for 1 well in a 1280, or two wells in a 2560. Karla, about the finances, when the operator is going to spend that much money to put in a well anywhere between 8-10 million dollars then up to a million dollars in infrastructure, they have to expect the kind of return I am talking about $40M for one well in a 1280 or $80M for 2 wells in a 2560. If you plunk down $10M for each well beyond the million or two that you leased the spacing for and then pay a royalty on that production that could range from 15% to 20% of that $40M plus lease operating expenses, and post production costs that the operator charges you for, he has them too, the only difference being he can deduct for the equipment on his. So we have 10M for a well, say 1M for infrastructure, 2M for leasing the acres and landman/title cost plus title work, probably more, so we are up to 13 million and we haven't sold a barrel of oil yet for 1 well in a 1280. When you do sell oil, you owe a royalty to the lessors that 15% to 20% so 5 or 6 million dollars of your $40M goes to royalty, we are now at 21-22 million dollars ahead. Last year the president of EOG was on Cramers Mad Money and with $100 oil said they netted $60 per barrel. We are talking $80 oil so I think we are in the ballpark. You see, if they could not expect such returns as we/I are talking about, they would not be drilling so many wells. You have to remember too, they are getting their money over 30 years also, would you risk that much money 20- 100 times a year for a payout less than I have described? Operators love a quick payback. If a well will pay them back in 2 years they are thrilled, if it takes 4 years less so, but still ok, but even if it pays out in 10 years, the smaller operators will sell that well because while it will make money eventually, they need their capital back now so they can try again for a well that pays out in two years, so they often sell that well to someone with deeper pockets.

Karla, we have never drained a Bakken or TF well dry, certainly not in a good area, 30 years is just my estimate that I think conservative, some people say 40 years. Depending on what area you are in in the Three Forks and Bakken 500k barrels might only be 5 years worth of production and I think your area is good enough that it could produce 500k barrels of oil over 30 years. I think Joe is a bit of a pessimist. There are also those who would point out that I was totally wrong if one of your wells only produces 499,999 barrels of oil, it didn't make 500k and that would make me totally wrong and discredited, and I don't care because in 30 years I will be safely dead and pushing up daisies. But I do care about you understanding what is going on right now.

Karla J Morrison said:

Mr. Kennedy,

Is that 1,000,000 over 30 years (approx) for each well? If it is indeed for each well, then I can see why one would not ever sell the rights. If however, you are saying that it would be 1,000,000 over 30 years including all possible wells, then that leads me to another question. We have received an offer of 9,000 dollars per acre to sell and that amount would be 1,422,000. Why would we not want to sell if we are going to end up with about the same amount, but NOW, versus over 30 years time? I am guessing you did indeed mean for each well (which could be eventually between 48/96 wells). Again, forgive me for being so ignorant in all of this.


13

You know, it occours to me that the spacing might not have been a 2560 when I made the $7,900,000 statement almost 2 months ago. I did say it was clean, not even any old wells, I guess I need to drag up some old posts by Joe.

14

Joe, when I looked at that spacing 59 days ago and said it was clean, not even any old wells, it might not have been a 2560. When I made the comment $7,900,000 57 days ago, it might not have been a 2560, I don't look at things I saw only 2 days ago and remember. How old would a post have to be for you not to dredge it up and compare it to facts today?

Mineral Joe said:

When you said "158 NET mineral acres would be millions of dollars worth, $7,900,000 if your wells come in poor for the area" I like Karla also thought you meant if her well comes in poor her 158 acre would be worth $7,900,000 but your saying you meant that would be the total gross revenue from one 2560 spaced well over it's life? So by what you said about what the director said, at 48 to 96 wells and at $1,000,000 she banks over 30 years time per well, your saying her total revenue over time will be $48,000,000 to $96,000,000 and if so she will make (bank) $607,594 per acre... that's more than SIX HUNDRED THOUSAND per ONE acre, and that's if those 96 wells are poor wells.

That would make the operator making well over a half a Billion dollars in just that 158 acres.

15

It was stated "If you have 10 net mineral acres and didn't lease you could make $350,000 from the same well after cost recovery" so times 15.8 which would be 158 acres = $5,530,000 for one well x 48 (1/2 what director said for 2560 acres) possible wells in a 1280 (the director stated and someone brought up suggesting it has meaning, that it may have merit in figuring possible revenue for an owner and why lessee will want that lease) = $265,440,000, that is over a 1/4 billion dollars implied possible to make after cost recovery with that 158 acre tract and I am sorry but people will be reading this for years so I wanted to get it straight even though I am not to look back at post older than 21 days. I said "what the director said". My post was to state what some people are rumoring about possible production and revenue figures for areas like that Bakken tract, I didn't even comment on whether I believed it or not but I did place a question mark in my comment because it was not fully defined about the previous post figures. Is there a specific amount of time one can not refer to past post like one day, 2 days, a week, a month, 2 months, as I don't want to make a mistake in the future and upset anyone again like I certainly have in my post in this discussion after reading the comment you left me on my profile. Oh I see, you told me 21 days, I will remember that in the future. I made a simple mistake of 1/2 because the spacing figure you had went from 1280 to 2560.

As for spacing and oil produced per acre, I believe it is expected that twice as much oil is expected from 2560 acres as from 1280 acres, that the total oil available does not change, what is there is there, I do see where the 96 maximum possible wells the director said was from 2560 and therefore the possible 96 wells mentioned should have been a maximum possible of 48.

When I see what I believe to be an exaggeration I will comment, it doesn't mean I am right they are wrong as neither may be right. I don't believe any oil company (some who are selling producing Bakken leases) are figuring in $1,680,000 per acre ($265,440,000 divided by 158) is how much money they might possibly make with poor wells in that tract area. $350,000 in one well as stated divided by the 10 acres = $35,000 and then times 48 possible wells the director stated = $1,680,000 per acre.

"If you have 10 net mineral acres and didn't lease you could make $350,000 from the same well after cost recovery, risk penalty and expenses." Now that sounds like an exaggeration no matter how many months ago it was written.

16

Joe, you certainly referenced 2560 and I don't think it was a 2560 at the time I made the post, there was no permit no wells drilling. I think the wells were waiting on the 2560 ruling and when they received they got a permit and started drilling in those two months.

Do you disagree that a well there could produce 500k barrels of oil in 30 years? And that the vaue could average $80 per barrel?

Do you disagree that if the immediately preceeding is true, that the value of the oil would be $7,900,000? I won't ask you if yopu think it's reasonable.

From your post below, it appears that you are still trying to link me with the NDIC O&G Directors take, I did put it out there, I gave credit for it where credit is due, I have said elsewhere that I have a more conservative view of 12 wells per 1280.

Joe, I will stand by $350,000 from 10 acres if one did not lease in Karla's spacing. I will go farther, I think she could make even more than 5,530,000 for 158 acres, if the average price of oil is higher or the well produces more oil which I think it can do. Joe, did you do any homework? Did you look at this area?

What has me irritated and has caused me to lose all respect for you was,

1. you did not take into account when the post was made, there were no wells or even permits at that time and I don't believe that it was a 2560 at the time, all you had to do was look at my post above that and or check for yourself, and

2. even now, you are still trying to link me to the directors 24 to 48 wells per 1280 pronouncement when I clearly gave credit where that came from. Joe, you are still doing it in the post I'm quoting below, are you not? Joe, where do you buy your brushes? If I ever decide I want to tar someone, not that I ever felt the need to, I want to have the largest brush possible and you seem to have found where to get them.

The trend of you post seems to be that you disagree with my estimate of production and value? That is fine with me, if you want to question my valuation, the product of my own calculations. I did not extrapolate what the amount of production or value of the oil produced based on the NDIC Directors announcement that there would be 24 to 48 wells per spacing, why do you think I did not do that? Why do you think the numbers YOU extrapolated from the directors pronouncements have ANYTHING to do with me? I never said all wells would be as good or how many. You said that, not me and I will give you full credit for it, if it ever comes to pass.

I do not have a problem with you disagreeing with me, it gives me licence to pull out my soap box and get my message across, but you are dunning me over a 2560 that I don't think existed at the time, two wells that there were not even permits for, and then you try to infer that I am saying what the director says. I never said I believed him. If you read through all the posts here, you may find one where I spoke about having more than a handful of spacings that have no infil wells after five years and that I called the small piece of a bigger pie theory, the small piece of a non-existent pie and now you have me saying 48 wells per 1280, I think not.



Mineral Joe said:

It was stated "If you have 10 net mineral acres and didn't lease you could make $350,000 from the same well after cost recovery" so times 15.8 which would be 158 acres = $5,530,000 for one well x 96 possible wells (the director stated and someone brought up suggesting it has meaning, that it may have merit in figuring possible revenue for an owner and why lessee will want that lease) = 530,880,000, that is over a half billion made after cost recovery with that 158 acre tract and I am sorry but people will be reading this for years so I wanted to get it straight. I said "what the director said, at 48 to 96 wells". My post was to state what some people are rumoring about possible production and revenue figures for areas like that Bakken tract, I didn't even comment on whether I believed it or not but I did place a question mark in my comment because it was not fully defined about the previous post figures. Is there a specific amount of time one can not refer to past post like one day, 2 days, a week, a month, 2 months, as I don't want to make a mistake in the future and upset anyone again like I certainly have in my post in this discussion after reading the comment you left me on my profile. Oh I see, you told me 21 days, I will remember that in the future.

As for spacing and oil produced per acre, I believe it is expected that twice as much oil is expected from 2560 acres as from 1280 acres, that the total oil available does not change, what is there is there, it doesn't disappear as you imply. When I see what I believe to be an exaggeration I will comment, it doesn't mean I am right they are wrong as neither may be right.

17

Mr. Kennedy,

Thank you for your efforts to help me understand. My 86 year old father and I own the mineral rights and he needs me to explain things to him. He thinks we should take the offer to sell the rights and take the money now because we will end up with $1,000,000 at the end of 30 years anyway. (He knows he will be gone by then, but wants to see me taken care of now). I am advising him not to sell and he just wants me to explain to him why that is best. I truly appreciate your time.



r w kennedy said:

Karla, my numbers were for 1 well in a 1280, or two wells in a 2560. Karla, about the finances, when the operator is going to spend that much money to put in a well anywhere between 8-10 million dollars then up to a million dollars in infrastructure, they have to expect the kind of return I am talking about $40M for one well in a 1280 or $80M for 2 wells in a 2560. If you plunk down $10M for each well beyond the million or two that you leased the spacing for and then pay a royalty on that production that could range from 15% to 20% of that $40M plus lease operating expenses, and post production costs that the operator charges you for, he has them too, the only difference being he can deduct for the equipment on his. So we have 10M for a well, say 1M for infrastructure, 2M for leasing the acres and landman/title cost plus title work, probably more, so we are up to 13 million and we haven't sold a barrel of oil yet for 1 well in a 1280. When you do sell oil, you owe a royalty to the lessors that 15% to 20% so 5 or 6 million dollars of your $40M goes to royalty, we are now at 21-22 million dollars ahead. Last year the president of EOG was on Cramers Mad Money and with $100 oil said they netted $60 per barrel. We are talking $80 oil so I think we are in the ballpark. You see, if they could not expect such returns as we/I are talking about, they would not be drilling so many wells. You have to remember too, they are getting their money over 30 years also, would you risk that much money 20- 100 times a year for a payout less than I have described? Operators love a quick payback. If a well will pay them back in 2 years they are thrilled, if it takes 4 years less so, but still ok, but even if it pays out in 10 years, the smaller operators will sell that well because while it will make money eventually, they need their capital back now so they can try again for a well that pays out in two years, so they often sell that well to someone with deeper pockets.

Karla, we have never drained a Bakken or TF well dry, certainly not in a good area, 30 years is just my estimate that I think conservative, some people say 40 years. Depending on what area you are in in the Three Forks and Bakken 500k barrels might only be 5 years worth of production and I think your area is good enough that it could produce 500k barrels of oil over 30 years. I think Joe is a bit of a pessimist. There are also those who would point out that I was totally wrong if one of your wells only produces 499,999 barrels of oil, it didn't make 500k and that would make me totally wrong and discredited, and I don't care because in 30 years I will be safely dead and pushing up daisies. But I do care about you understanding what is going on right now.

Karla J Morrison said:

Mr. Kennedy,

Is that 1,000,000 over 30 years (approx) for each well? If it is indeed for each well, then I can see why one would not ever sell the rights. If however, you are saying that it would be 1,000,000 over 30 years including all possible wells, then that leads me to another question. We have received an offer of 9,000 dollars per acre to sell and that amount would be 1,422,000. Why would we not want to sell if we are going to end up with about the same amount, but NOW, versus over 30 years time? I am guessing you did indeed mean for each well (which could be eventually between 48/96 wells). Again, forgive me for being so ignorant in all of this.


18

Karla, that could be the best decision. Mineral Joe may, and no mistake, I say may, put me in the group that says never sell, which would not be true.

The two wells drilling right now will probably have high production at the start, some very nice checks that would start coming any time from 6 months to 1-1/2 years, they would continue to be good but declining for possibly 3-4 years. If no other wells are drilled, the decline could seriously cut your income. I do think more wells would be drilled in that time as your area is probably the equal or better than mine, but I could not gurantee it. Someone who has the ability to wait will have a great investment. Two things, I would take Mineral Joes frequent advice and not sell all if you can help it, possibly sell 3/4 or even 7/8ths of what you have, and the other thing would be to get as many bids as you can, someone may even offer 5% or 10% more than any offer you have on the table right now and when you are talking that kind of money, that is a considerable amount. I have no dog in the fight, the advice I give you would be the same advice I would give the person or company that bought from you. I hope you can keep some of it. I wish that you had gotten a chance to lease again, it would have been epic. Good luck and my best wishes go with you.

Karla J Morrison said:

Mr. Kennedy,

Thank you for your efforts to help me understand. My 86 year old father and I own the mineral rights and he needs me to explain things to him. He thinks we should take the offer to sell the rights and take the money now because we will end up with $1,000,000 at the end of 30 years anyway. (He knows he will be gone by then, but wants to see me taken care of now). I am advising him not to sell and he just wants me to explain to him why that is best. I truly appreciate your time.




19

Mr. Kennedy,

One final question. If we do decide to sell some of the rights, how do we go about getting bids?

r w kennedy said:

Karla, that could be the best decision. Mineral Joe may, and no mistake, I say may, put me in the group that says never sell, which would not be true.

The two wells drilling right now will probably have high production at the start, some very nice checks that would start coming any time from 6 months to 1-1/2 years, they would continue to be good but declining for possibly 3-4 years. If no other wells are drilled, the decline could seriously cut your income. I do think more wells would be drilled in that time as your area is probably the equal or better than mine, but I could not gurantee it. Someone who has the ability to wait will have a great investment. Two things, I would take Mineral Joes frequent advice and not sell all if you can help it, possibly sell 3/4 or even 7/8ths of what you have, and the other thing would be to get as many bids as you can, someone may even offer 5% or 10% more than any offer you have on the table right now and when you are talking that kind of money, that is a considerable amount. I have no dog in the fight, the advice I give you would be the same advice I would give the person or company that bought from you. I hope you can keep some of it. I wish that you had gotten a chance to lease again, it would have been epic. Good luck and my best wishes go with you.

Karla J Morrison said:

Mr. Kennedy,

Thank you for your efforts to help me understand. My 86 year old father and I own the mineral rights and he needs me to explain things to him. He thinks we should take the offer to sell the rights and take the money now because we will end up with $1,000,000 at the end of 30 years anyway. (He knows he will be gone by then, but wants to see me taken care of now). I am advising him not to sell and he just wants me to explain to him why that is best. I truly appreciate your time.




20

Karla, there are online auctions. I would do a search. I will also do a search later. I'm about to be late for a movie at the moment though. You could also hire a reputable professional to handle the sale for you, although I think the offered price is not out of line for acres leased ay 1/6, even a little more per acre could add up.