An independent Landman came with offer for our minerals that were missed when they initially leased minerals a couple years ago. The three wells have just finished drilling.
What are my options? Do we have to sign with this Landman (by the way, he is very aggressive and rude, and of course in huge hurry). They are forecasting participation to be a total of $440,000. The AFE’s were at $9.4M.
Operator is Enerplus. Landman is Robert Reeves Dalton with Vintage Oil and Gas.
This is in McKenzie County North Dakota.
Well names are:
Tackle 149-95-36C-25H TF
Get a lawyer. Listen to him/her. They have screwed up. The aggressive landman can be stopped in his tracks by the lawyer. He is trying to repair a mistake by overwhelming you.
In Oklahoma this would be a carried interest. Meaning there money has been spent so they could drill without you being leased. They would be entitled to get the money spent on your acres back and then you would have 100% interest. I don't know about your state laws and am not a lawyer.
How do you know how much the drilling cost? And how do you find out when they have recovered their money?
Tyler, you may be interested in my answer to Carol Dakan's question. I replied on another thread of yours. Your wells were not completed yet according to reports.
The operator decides ahead of time how much money they expect to spend to drill and complete the wells. The AFE is an estimate only. The cost to complete wells could be more or it could be less. The point is that the operator can say anything they want within reason in the estimate. The AFE could be based on 30 frack stages and the operator could change their mind and only perform 10 frack stages (unlikely) and you would be entitled to a refund.
If you participate, partially for a few acres (because that is an option also) or for the full development cost the operator needs to make an accounting, you are entitled to it.
If you decided to be non-consent in one or all wells the operator should tell you when the well has payed out and recovered the risk penalty. Some operators send quarterly payout statements (Conoco). If you decide to be non-consent, I think I would presume that I would need to audit the operator. I have a well that I think it likely I will have to audit right now.
In your place I wouldn't lease, I would spread my participation between the three wells because if you have all the bills for the part you participated, you will have an excellent idea of when your non-consent/carried interest will have recovered the risk penalty. It would also spread your risk. I hope this helps.
Carol, you may be interested in the answer below.
If they haven't integrated then there isn't any risk penalty and your and unleased cotenant subject to payout after 100%. If they've integrated the sections, and you elect not to lease, you are an unleased cotenant and get greater of a 16% royalty or the average royalty rate, plus back-in for your full interest after 150% payout. Don't let them push you around.
In ND the operator is going to get a "pooling" order which covers everyone who owns in the spacing even if they think they have everyone leased. If someone is missed and discovered later, all the operator needs to do is make a good faith lease offer and an offer to participate to which you will have 30 days to reply, and if you should decline to lease or participate the default is that you are non-consent.
If the wells have already payed out, you may challenge the risk penalty in court but it will be imposed until and unless you do challenge the risk penalty. The letter that comes with the AFE will usually state the operators intent to impose the risk penalty according to applicable state law.