Private vs state auction lease bonus (++), Divide County, ND

My grandfather migrated from Norway and homesteaded a farm in Divide County, North Dakota. He returned to Norway and sold his farm, but kept the mineral rights. Recently my parents recieved a leasing offer adressed to my grandfather (who died many years ago). I have some questions related to this, and would be very grateful for any answers:

1. How does the bonuses from the state auctions compare to private lease bonuses? The lease bonus offer my family recieved was considerably lower than that of neighbouring sections leased at state auctions last year. However the royalty offered was slightly higher, 3/16 vs 1/6. Both allow the lessee to explore for oil and gas for five years.

2. Could anyone give an estimate of the leasing bonus development (in percent) from 2010 to 2011 in Divide County, ND?

3. As a homesteader I assume my grandfather had 160 acres of land. In the leasing offer it states that he has 48 net out of 320 gross acres. Assuming that he kept all his mineral rights, how could this be? Is it possible that he has 112 acres available for lease to a different pool/drilling unit?

4. The key points of a lease contract seems to be the lease bonus, the royalty and the length of the leasing period. Are there other factors that are important to consider?

I'm sure some of these questions have been answered before and links to relevant topics would also be appreciated.

I have ZERO experience in North Dakota, but since no one else
answered, I'll offer you what I know.

1. The royalty percent is a much more important negotiation point
than the bonus. You receive a lease bonus 1 time; your royalty can be paid out
over many years. That said, I would negotiate for both a higher bonus and a
higher royalty. Most companies expect for you to counter offer. You can request
that they use a percent instead of a fraction in the lease. When I send out Oil
and Gas Leases, I prefer to do this because it is much clearer.

Also, I wouldn't sign a lease for more than 3 years.

2. I wish that I could help you with your question about the bonus
amount, but as I said before, I am not experienced in North Dakota.

3. No one will be able to answer your question about your grandfather’s
interest without reviewing the legal documents involved. Your best bet is to
ask the company that contacted you for an explanation. If the person you speak
with doesn't answer your questions, contact someone else with the company. Some
Landmen and Lease Agents don’t like giving that type of information. As long as a land/mineral owner is
respectful, I don't mind answering their questions. Find the “nice guy” in the office.

4. There are many factors that are very important to consider,
such as: How much of the cost of transportation and production will your
royalty interest be burdened with? What are they offering for a shut-in
royalty? How long can they hold your property with shut-in royalty payments?
What type of pooling is allowed under the lease?

This link may help you.

Best of Luck.

Also, Under no circumstances send the lease back to the company until you have a check in hand that has cleared your bank.

Feel free to have your parents send a COPY of a signed lease as proof.

I've been reading horror stories about companies in that part of the US not paying people.

Thanks for sharing your experience Myranda.

It turns out that the lease offer conserned the mineral rights my grandfather inherited from his brother, who homesteaded a 320 acre property. This rises a new question:

In 2005 these rights were about to expire due to 20 year without activity (North Dakota regulations). My grandfather was dead and the new claims were made in his sons and daughters names. Say that 3 out of 5 siblings claimed his/her rights. Will they then have one third of my grandfathers rights each, and the two that did not post a claim will have lost their share?

I believe the unclaimed interest would have gone to the surface owner of the land. The link below backs up that thought.

There isn't a group on the forum for Divide County North Dakota, but you may want to try to join one of the other groups in North Dakota. You have a much better chance of getting correct answers from someone familiar with this industry in that area.

"I believe the unclaimed interest would have gone to the surface owner of the land."

Thats possible, but theese rights were registrered on my grandfather, and claims to his rights were made by (some of) his children at the end of the 20 year period. No rights were unclaimed, but some of the siblings did not claim their part.

A more obvious situation would be if the rigths were already registrered on the five siblings when the rigths were about to expire. If only three of them stated a claim, then the rigths of the other two clairly could have been claimed by the surface owner.


To add some to this discussion, you asked about the difference in private vs state auction bonuses. In a state auction, I believe that the high bidder leases for 5 years and usually a great deal of contiguous acreage is involved. Much less ground work (record research) has to be conducted by the company as opposed to private leasing, where someone has to pay a landman to research records and locate sometimes numerous owners before a lease offer can be presented. In regards to the bonuses for the Divide County area, I would guess that where in this county your minerals are located weighs heavy in determining this amount. Naturally, mineral acreage near a good producing well will bring more than one in an area which has seen little to no drilling activity. I would hazard a guess that acreage near a good well could bring in the neighborhood of $1200/acre, while other areas could bring $600 - $1000/acre. These amounts will vary in just how much the lessee wants the acreage and is willing to pay and also how many acres you possess. Finally, I will add that a factor important to consider in a lease is a "Pugh Clause". I won't get into definitions, etc. about pugh clauses but you can google this and learn from the different sites.