Oil Lease in Burke Co. North Dakota

I recently inherited a quarter in Burke Co. and have been offered $300 and 1/6 for a 5 year lease. Is this comprable with other leases in the area? I’m seeing discussions of $500 and 3/6.

Hello Ted,

Do you mind if I ask you who the company is that made the offer?

Thanks, Tom

Paladin Resources made the offer. Are you familiar with the area?

Hi,, I read in the Dickenson newspaper that some federal leases, I think it was south of Dickenson, sold for $8,800 per acre. I am not sure how closes these leases are to your land.

Ted:

I have dealt with Paladin Resources in the past and they are a broker who leases for various companies. I believe that one of their main operators is Marathon. I would shop around as getting in a hurry to sign a lease will be a mistake. Never take the first offer as these brokers have a set amount (bonus and % royalty) they will negotiate. You might want to check the NDIC website (GIS MAP) and see how much production or drilling is currently occurring near your area. This is a major factor in the value of your lease.

Ted, I saw that EOG and Contenntial have advertising in the newspapers for mineral rights. You should contact them to see what they will offer.

Ted:

Mr. Mehr has given you two good companies to deal with. Both have a good track record in the Bakken play although I believe that Continental has the edge in regards to being an aggressive driller. One thing you have to remember is that selling and trading leases among operators is a common practice so you may not know who will drill until the permit application is made and the rig is on location.

I work in the oil fields and the Truck Driver’s tell me the biggest wells they gather oil from are by Whiting Oil, EOG and Continental.

I wouldn’t argue with Mr. Mehr. I will point out though that the 3 players he mentioned are all early Bakken / TFS players and didn’t hesitate when they found the sweet spots, so they will have quite a few good wells. Other operators might be drilling equally good wells, just not in as good of a spot. My wells drilled by Continental in Mckenzie county aren’t barn burners by any means although the location is good. I think all the operators drill better wells than they did 6 or 7 years ago.

Ted Mehr said:

I work in the oil fields and the Truck Driver's tell me the biggest wells they gather oil from are by Whiting Oil, EOG and Continental.

I agree with Mr. Kennedy in regards to the improvement of drills over time. It will be interesting say 5 years from now what the technology in the drilling industry will be. I believe one of the next big changes in technology will come in the area of fracking. This is the most important stage of the drill in my opinion and currently it is highly under the radar by the EPA.

The next big change is the reducing the land size that is required for each frac. It is going from 1 section to 160 acres of is it 640 acres. So, there well be more holes in the ground. What I have heard is the state wants more oil so they are reducing this requirement.

Ted:

That is interesting news. This is the first time I've heard about this condideration on lowering the land size. I wonder if Montana will follow suit?

I have been hearing some talk about 60% of the oil is coming from the first 2,000 ft of the lateral. If this is so then extra long laterals only serve to hold more acres by production and are wasteful. I have been looking at some short lateral wells that aren’t even the full length of one section let alone a diagonal, and they seem to bear this out. I wonder what the NDIC will say if / when this is determined to be correct ? I wonder since the NDIC has been letting the operators jam us into 1280’s on the basis of preventing waste. What if the 1280’s are found to be the biggest waste of all, with the second mile of lateral only adding about 20% to the production?

My question is who determines this in regards to oil recovery. If this situation is proven, I would say the only thing the NDIC could do would be to migrate away from granting the 1280’s in order to obtain the optimal efficiency from the well. This will be something to watch for in the future.

The long lateral makes sense from a physics standpoint as long as it’s under pressure, but as soon as you go to pump ( pulling a vacuum ) the vacuum becomes weaker for every drop of fluid you extract close to the pump. I can visualize the pull being pretty tenuous 9,000 + feet down the lateral.

Hi Ted,

Are there any negotiations going on? I don't personally like the sound of a 5 year lease. If they can't get a hole in three years then they aren't very serious. Also, please tell me what the 3/6 is? Sometimes we abbreviate to the point of being incomprehensive.

Yours,

Wes Luke

I'm currently in discussions with 2 different companies regarding a lease. I've got an offer from the one for a 5 year lease at $300 per acre and 1/6 of gross proceeds. The other company promises an offer this week.

The 3/6 I posted was meant to be 3/16. Do you know Burke Co. well enough to know if the current offer is a good one. I take it that you think it should only be a 3 year lease. Should I ask for the $300 on a 3 year lease?

Ted:

I would never a sign a five year lease as three years is the max. I agree with Wes in that if the thought of drilling is serious, it should be done in three years. I'm not familiar with Burke Co. so maybe someone can enlighten you about the $300 bonus for that area.

Ted Senecal said:

I'm currently in discussions with 2 different companies regarding a lease. I've got an offer from the one for a 5 year lease at $300 per acre and 1/6 of gross proceeds. The other company promises an offer this week.

The 3/6 I posted was meant to be 3/16. Do you know Burke Co. well enough to know if the current offer is a good one. I take it that you think it should only be a 3 year lease. Should I ask for the $300 on a 3 year lease?

Ted. I’m no expert on Burke co but even if you are on the fringe; I don’t think you would be unreasonable to expect $100 per acre for every year of the lease. 3/16 is a better royalty than some negotiate, but 1/5 (20%) is better still. From what I have seen the operator is willing to lease at 20%, and it’s the landman that isn’t willing to lease you at 20% because his chance for a fat override is gone at that point. Case in point, my aunt leased for $200 per acre and 15% royalty in 2005. The landman who signed my aunt’s 350 net acres got a 5% royalty and probably as much cash as she got…1/3 as much as my aunt will receive from her oil, just for signing her, and you know it wasn’t difficult to sign her if she settled for 15%. It gets better. The person who signed my aunt flipped her lease to another leasing 3rd party who then assigned my aunts lease to the operator for a 0.625 of a % royalty, totalling 20.625%, only 15% of which my aunt gets. The moral of this story is start your negotiations at 20% royalty. The landman may stand to gain the difference between whatever you lease for and 20%. Keep that in mind as you negotiate.

Thanks for your advice. Was you aunt in N. Dakota, what county was you aunt’s land in?

r w kennedy said:

Ted. I'm no expert on Burke co but even if you are on the fringe; I don't think you would be unreasonable to expect $100 per acre for every year of the lease. 3/16 is a better royalty than some negotiate, but 1/5 (20%) is better still. From what I have seen the operator is willing to lease at 20%, and it's the landman that isn't willing to lease you at 20% because his chance for a fat override is gone at that point. Case in point, my aunt leased for $200 per acre and 15% royalty in 2005. The landman who signed my aunt's 350 net acres got a 5% royalty and probably as much cash as she got.....1/3 as much as my aunt will receive from her oil, just for signing her, and you know it wasn't difficult to sign her if she settled for 15%. It gets better. The person who signed my aunt flipped her lease to another leasing 3rd party who then assigned my aunts lease to the operator for a 0.625 of a % royalty, totalling 20.625%, only 15% of which my aunt gets. The moral of this story is start your negotiations at 20% royalty. The landman may stand to gain the difference between whatever you lease for and 20%. Keep that in mind as you negotiate.