I own a Mineral Deed for 1/2 acre interest on 160 acres in N.D. A well started producing oil in 2011, and I am currently receiving about $33/month in royalty interest. The operating company figures my share as .0000625, and I wonder if this is accurate. I just realized that I don't have a signed lease with the producing co. or anyone, but I DID sign a Division Order in 2011 before the checks started arriving. The total acreage on this Order is 1280 acres (640 acres are in a Section in which it appears I have no interest.) I now have been contacted by an oilman representing another oil co. He is offering me a $750 bonus plus 20% royalties to sign an Oil and Gas Lease with the OPERATING COMPANY that is now paying me royalties. The Lease has the current date but in the body of the Lease it says that "It is agreed that the lease will be in force for 3 years from a date in 2010 and as long thereafter-----. They also sent a W-9 Form for my Tax ID number, but I received a Substitute 1099-Misc.Inc. form from the operating company for my 2011 taxes. I hate to contact an attorney for such a small amount of monies, but I don't want to do anything stupid either. I'd appreciate any advice as to whether I should sign the lease (but why would someone other than "my" operating company want me to do it? ) Also, is the .0000625 the correct allocation, and if not, what action should I take?
Ms Sharpe, they probably have you as a carried interest and paying you 16% royalty, with the other 84 % going to pay for your part of the well and operating costs plus a 50% penalty of the actual cost of drilling the well. The operator must offer you a lease and if you don't accept that they must offer you participation in the well before they can petition for the risk penalty. I would say with only 1/2 acre, leasing is probably your best option. You may also ask if they would like to buy you out for $4,000. If you do lease, I'd at least ask for $1,000 signing bonus and no deductions for trucking/transport, gathering, dehydrating, compressing or marketing oil and gas.
r w kennedy said:
Ms Sharpe, they probably have you as a carried interest and paying you 16% royalty, with the other 84 % going to pay for your part of the well and operating costs plus a 50% penalty of the actual cost of drilling the well. The operator must offer you a lease and if you don't accept that they must offer you participation in the well before they can petition for the risk penalty. I would say with only 1/2 acre, leasing is probably your best option. You may also ask if they would like to buy you out for $4,000. If you do lease, I'd at least ask for $1,000 signing bonus and no deductions for trucking/transport, gathering, dehydrating, compressing or marketing oil and gas.
Mr. Kennedy, Thank you so much for your reply. I will call the oilman whom I now realize is representing "my" producing company and try to negotiate better terms as you suggested, but I will sign the lease now that I understand the matter better. I am still puzzled by the .00006250 specified on the Division Order as no matter how I do the math I cannot come up with that figure. Thanks again for your help with this very small amount of ownership.
r w kennedy said:
Ms Sharpe, they probably have you as a carried interest and paying you 16% royalty, with the other 84 % going to pay for your part of the well and operating costs plus a 50% penalty of the actual cost of drilling the well. The operator must offer you a lease and if you don't accept that they must offer you participation in the well before they can petition for the risk penalty. I would say with only 1/2 acre, leasing is probably your best option. You may also ask if they would like to buy you out for $4,000. If you do lease, I'd at least ask for $1,000 signing bonus and no deductions for trucking/transport, gathering, dehydrating, compressing or marketing oil and gas.
Not all spacings are exactly 1280, and they are probably figuring your interest at 16% which is not the common 1/6 [16.6666], 3/16 [18.75] or the easy to calculate 20%/ 1/5th. If your spacing is comprised of sections from the top or west side of the township there can be adjustments for the curvature of the earth. If you multiplied your decimal interest .0000625 X 1280 = 0.08 X 6.25 which is how many times 16% goes into 100% = .5 . Did I do it right ? Don't ask me! I'm dislexic and like to have a calculator and the formula right in front of me, but it fits.
Mr. Kennedy, You have no idea how much I appreciate your answers to my emails and am I impressed with your knowledge and your MATH! I have one more question: In the legal description on the Lease sent me, the description is the same as on my Deed, but after the Township and Range it says 5th P.M. before the Section number. I'm wondering if that changes anything?? I should also tell you that this property is in Williams County, N.D. in Township 153, where the well is producing. Does this change any of your previous suggestions? Thanks SO MUCH--I'm sure learning a lot from this experience and at 80, it isn't easy!
r w kennedy said:
Not all spacings are exactly 1280, and they are probably figuring your interest at 16% which is not the common 1/6 [16.6666], 3/16 [18.75] or the easy to calculate 20%/ 1/5th. If your spacing is comprised of sections from the top or west side of the township there can be adjustments for the curvature of the earth. If you multiplied your decimal interest .0000625 X 1280 = 0.08 X 6.25 which is how many times 16% goes into 100% = .5 . Did I do it right ? Don't ask me! I'm dislexic and like to have a calculator and the formula right in front of me, but it fits.