My wife received a letter from Continental Resources concerning some mineral rights she owns. They are proposing to drill the Sisko 1-8-5XH well and want to know if she wants to participate. They have given her 5 options:
1. To participate in the drilling. This option states she would have to have her share of completed well costs paid on or before due date of any pooling order.
They didn't state what this cost would be. Is there a way we could find out?
2. $1000 per acre and deliver to Conntinental an 87.50% (1/8) net revenue interest.
3. $750 per acre and deliver to Conntinental an 81.25% (3/16) net revenue interest.
4. $250 per acre and deliver to Conntinental an 80.00% (1/5) net revenue interest.
5. Lease or sign your interest to Continental for no bonus consideration and deliver to Continental a 75.00% (1/4) net revenue interest.
We have no experience with mineral rights and have no clue what all this means. Can someone put this into simple terms and explain the pro's and con's between option 1 and 5?
This is in Grady County in sections 5-5N-5W and 8-5N-5W.
Any information would be greatly appreciated.
The options are putting speculation into your hands; If you believe there is recoverable oil and you choose option 5, you get no bonus to sign a lease but you get a high 25% of any oil/gas recovered. If the neighboring land has producing wells, do some research and find out what they are recovering and do the math to see what royalties would be @ 25%.
Option 2 gives you a maximum amount of bonus, but the least percentage of recovered oil/gas. Options 3 & 4 are graduated between 2 & 5, the more bonus you accept, the less in royalties you'd receive. Research, research, research. You may need to find an oil & gas attorney familiar with your area to help you decide which one is the most advantageous to you, and assist in drafting a lease that looks out for your interests.
The bonus on face might look attractive, especially #2, but depending on the lease term, it may not be, i.e. $1000/acre for a 5-year lease boils down to $200/acre/year and then 12.5% of recovered minerals. If there is no other leasing/drilling/recovery around your land this might be the only thing you get for the lease term until it expires, and there is no guarantee that Continental will even drill. #5 means you get $0 for signing a lease but the most if recovery occurs. It depends on if you need $ now or you can wait and hope Continental recovers oil & gas.
How many acres do you have to lease? Here is a very simple example of the math assuming 1/4-section/160 acres and recovering 300 bbls/day @ $65/bbl (You see the need to do the proper research around your land to do the math);
Option 5: $0 to lease, 25% of recovered oil would net you $1,780,000/year
Option 2: $1000/acre to lease = $160,000 + 12.5% of recovered oil ($890,000) would net you $1,050,000.00
So, if you don't need cash and can speculate that there will be recoverable oil, it might be worthwhile to opt for #5... or 3 or 4????
Understand that there are many variables involved, including no oil/gas will be recovered over the lease, so be prudent, do your due diligence and good luck!
Good advice! But don't wait too long. From what you wrote, if it is the Pooling Order that you have received, the twenty days are counted from the date the order was signed, not the day you received it.
This is a well completion report for Section 17, immediately south of the sections you mention.
This link is to the Oklahoma Tax Commission site https://www4.oktax.onenet.net/GrossProduction/displayPublicPUNListSearchDownload.php?option=legal&var=-17-05N-05W
Our family has producing multiple wells just north of you in 6N 5W. My advise would be to take the 25% royalty. Unless you are hurting for money right now, the bonus will be short lived and when they drill, and I believe they will drill, the higher royalty will payout for decades to come.
My suspicous mind turning makes me ask this: If one chose option 5, and a neighboring landowner chose option 1, would it be more llikely drilling would take place where option 1 was selected? Hmmmm.......
Good to know! Thanks Wesley!