Would like to hear from anyone who has participated in drilling, i.e., elected the first option on the leases, or who knows how this is done.
Thanks.
What do you need to know? This is a very broad question… Being a mineral owner or with an oil and gas lease?
Basically, you wait until you are force pooled by the operator and then elect the option. Send a check for the correct amount of acreage and sit back and wait…
Note if AFE is 10 million and the well is spaced for 640 acres, your cost is $15,625.00 an acre. If you own the mineral acreage, you receive 8/8ths of the production to the acre, less operating expenses.
Thank you for this information. I am happily surprised that it could be that simple.
I was sent leases by land men before the forced pooling, but I didn’t sign. Monday was the forced pooling court hearing. Should I soon expect a lease sent from Continental?
My share of participation would be due before they begin drilling?
What percentage of gross is operating expenses, usually? Seems like that could vary quite a lot.
What’s your thought on electing this option vs just taking royalties? Does it usually pan out to get at least your investment returned, or is a dry hole a dead loss?
Brian Stamps said:
Note if AFE is 10 million and the well is spaced for 640 acres, your cost is $15,625.00 an acre. If you own the mineral acreage, you receive 8/8ths of the production to the acre, less operating expenses.
Chipper, if you are pooled I doubt the landman is going to send you a lease again unless you ask. The operator is just going to let you elect your option under the pooling. Your share would be due within the allotted time after the pooling order is issued, usually by the 20th day after the pooling order. This may take a few days or a few months for the pooling to be ordered. Usually RIO can be run on a royalty calculator. You should run some numbers on this and see if it’s for you or not. www.shalebiz.com has a very great royalty calculator. Also research a few wells in the nearby area that have been completed to give you numbers to work with. Scour the Daily Oklahoma or OCC website for this info. Or just ask in the forum; members, a lot of people know exactly what wells are producing and what rates.
Also note well amount is in the pooling order and you can calculate your cost for the completed well.
Any liabilities come with participation that leaseholders for royalties wouldn’t be subjected to? What if the well costs go over budget, would participating partners be liable for more costs over the years?
Thank you again, Brian, for your time and giving me the benefit of your experience.
Chipper, there is no gain without risk. Risk assessment and management is key. Much of what you want to know will be in the Joint Operating Agreement. Over time the well may cost more to operate than it pays and what you can do may vary from state to state. I know that in North Dakota if my well costs me a great deal more to operate than it brings in and I think it never will show a profit again I can give my interest to the operator and the operator has to pay me the salvage value of my portion of the equipment and I would not be responsible for the well’s bills from that time forward, of course if the well is later successfully reworked and shows a profit again I won’t profit from it.
Chipper Roth said:
Any liabilities come with participation that leaseholders for royalties wouldn’t be subjected to? What if the well costs go over budget, would participating partners be liable for more costs over the years?
Thank you again, Brian, for your time and giving me the benefit of your experience.
Yes, you need to set up an LLC and protect your tail end. If a well blows out and destroys something you will be liable just as the operator. Do not participate as an individual; set it up and lease your interest to your LLC.
Chipper, YOU DO NOT SEND THEM A CHECK FOR NOTHING!!! SORRY BRIAN, BUT THE OPERATOR WILL CARRY YOU AS YOU ARE ENTITLED. THEY MUST NOTIFY PROPERLY TO IMPOSE RISK PENALTY IF YOU ARE TALKING IN NORTH DAKOTA. IT’S YOUR OIL.
Jody, are you saying you don’t have to send a check when you make your election? You’re talking North Dakota, I see. Right?
Check your state statutes. They scare mineral owners with the payment up front to scare them into signing a lease, which basically gives all your minerals away. Your oil and gas commission should have something on integration of fractional interests. Sign the AFE and send it back as they will take your cost-free share out of production while still paying you a royalty.
Judy, here is a pooling order as per state statutes. http://imaging.occeweb.com/AP/Orders/0302AF93.pdf
I ask for payment with notice of spud that was in there because they ask for one year to drill the well. Otherwise it would have been 25 days from date of pooling for everyone to pay.
Ron, that is the worst order I have ever read in my life! The commie mission of Harold Hamm (Ham as in pig?) and your chairs, SEC, N Commissioner is against all constitutional rights of everyone involved as mineral and even surface owners… You need a lis pendens filed immediately plus the ACLU and Spence Law need to be contacted immediately by you and whoever else will! This seriously is wrong and you have really no option according to this because all the quick time statutes and money (cash) mineral owners must produce, and who said you even wanted a nasty, poisonous, can’t use the water, watch you and your neighbors die of mysterious chemical causes, and the oil company has the right to hold your money til any cash disputes settled…
This once again, is against all your constitutional, civil, ethic, and moral rights!! Those people should be ashamed of themselves… Karma is a kuntz, so let’s stop this illegal business and political pillaging of your rights… Contact as many neighbors as possible for class action criminal suit… Can’t even believe they did that to you guys! That also breaks the 10 commandments..bad
You would go nuts in Texas.
Are you saying in North Dakota they will let you take a Working Interest with no money up front? If it’s a good well they will take it out of your share and charge you nothing in interest. What do they do if it is a bad well?
Corporation Commission should also be illegal… And could they not show a more biased order than this, going to show the greed and ignorance combined in this world… I am positive that you have grounds and evidence to prove the oil companies and certain government officials coerce and extort every single person in this forced pooling order… Some wording I have read similar in North Dakota’s Oil and Gas Commission forced pooling order, but your commission takes the cake when they value your minerals and set the price… I’d tell them to eat a dick (pardon my language, but that’s how bad they really are and wrong!) You must act quickly.
Has been this way for 30 years + that I have been involved. You still haven’t told me how you do a working interest in North Dakota. You should have seen how they handled the Indians’ interest if you think this is bad.
It just so happens that GMX Junk Resources drilled a joke of a well on my land that has an artesian formation… then they of course fracked cracked it, and have forever even ruined my capped well that was there too… so what happens when the inexperienced operator that spends $11 million to drill a well that maybe produces 175 barrels/day produces a bad well?
That’s exactly what I wonder because then they have created waste of your natural resources, which is also illegal, right there with theft and neglect… hence, the emergency/urgency to file injunctions immediately and notify PBS, as they will cover it. The oil companies control the others, so don’t even bother, but you could get your local paper to run campaign for “Fight the Bullshit!!” I really can’t even believe how horribly wrong that order is… I hope you’re ready to stand up for your rights! Please do!