In Oct. 2011 I signed a Division Order (but never a Lease) on mineral rights in Williams County, ND and began receiving checks soon thereafter however they stopped in Feb. 2012. Now, a landman has sent me a lease with the operating company with $1500/acre bonus and 20% royalties as well as a W-9 Form to sign with my IRS Tax No. The date on the top of the Lease is current, but in the body of the Lease, it reads: "It is agreed that this lease shall remain in force for a term of 3 years from 10-16-10!!!" This puzzles me and I hesitate to sign it since I don't understand why it is, in effect, predated. Is this common procedure and should I contact the landman and/or the operating company for an answer? In addition, I looked up info on the well and see that it is a well with horizontal legs entering this section with the surface location in a different section. How does this affect my interests? I received a lot of help in this discussion before and appreciate it very much plus would welcome any input on the above. Thanks!
Ms. Sharpe, I think they have determined that you have an economic well and they had been treating you as a carried [ non-consenting ] interest. The operator may now know the well is going to be profitable they want you to sign a lease and give up 80% of your oil and the money that you would have been paid for it. Since they have been paying you they obviously knew who and where you were, why didn't they make the lease offer earlier ? You have probably been collecting a 16% royalty which will continue, until the other 84% of your oil pays for the well and expenses. If you could provide a legal description I could look the well up for you, give you the latest production figures I can see. I am a carried interest and future owner in a few wells myself. I think you probably have a pretty good well if they are offering you that much in the first lease offer, and yes backdating the lease stinks. The oil companies lease for a pittance and say they are taking all the risk. You have a producing well and where is all this risk spoken of ? The operator wants to pay you the pittance they usually front when there is risk, on an already producing well. I will send you a friend request if you don't want to give your legal description where everyone can see it.
R.W,
This operator(oil company) sounds like another of your 'Cheap Charlies'. I laugh every time I think about that phrase that you posted one day in the past.
Janette may need to hire a Oil and Gas attorney. She could have a lot to loose if this is not done right. Sounds like possibly a very good well here.
Clint Liles
Mr. Kennedy, Thank you so much for your reply--I found it VERY helpful and would appreciate the friend request. JS
r w kennedy said:
Ms. Sharpe, I think they have determined that you have an economic well and they had been treating you as a carried [ non-consenting ] interest. The operator may now know the well is going to be profitable they want you to sign a lease and give up 80% of your oil and the money that you would have been paid for it. Since they have been paying you they obviously knew who and where you were, why didn't they make the lease offer earlier ? You have probably been collecting a 16% royalty which will continue, until the other 84% of your oil pays for the well and expenses. If you could provide a legal description I could look the well up for you, give you the latest production figures I can see. I am a carried interest and future owner in a few wells myself. I think you probably have a pretty good well if they are offering you that much in the first lease offer, and yes backdating the lease stinks. The oil companies lease for a pittance and say they are taking all the risk. You have a producing well and where is all this risk spoken of ? The operator wants to pay you the pittance they usually front when there is risk, on an already producing well. I will send you a friend request if you don't want to give your legal description where everyone can see it.
For future reference, never sign a division order without first securing a lease. Once a division order has been signed, I'm told that legally you have accepted, more or less, the terms of the lease even though you never signed the lease; furthermore, by cashing the royalty checks you have further confirmed acknowledgment of the terms of the lease (all this unknowingly, unwittingly). This may be debatable. I'm guessing production began without securing a lease from you, so they are backtracing and covering their mistakes. $1500 is good but not knowing any details, could be much higher. PLEASE ask for 25% royalty. Do research, probably best to find a good oil and gas attorney.
Mr.Hicks, Thank you so much for your reply--it is really appreciated and I think you raise two very good points. I only have a very miniscule interest and doubt if it warrants the advice and expense of an attorney so will give it a little more thought before making a decision as to whether to sign the lease or not. JS
Ron Hicks said:
For future reference, never sign a division order without first securing a lease. Once a division order has been signed, I'm told that legally you have accepted, more or less, the terms of the lease even though you never signed the lease; furthermore, by cashing the royalty checks you have further confirmed acknowledgment of the terms of the lease (all this unknowingly, unwittingly). This may be debatable. I'm guessing production began without securing a lease from you, so they are backtracing and covering their mistakes. $1500 is good but not knowing any details, could be much higher. PLEASE ask for 25% royalty. Do research, probably best to find a good oil and gas attorney.
Mr. Hicks,
You are misinformed on the nature of a division order. A division order is not a ratification. Whoever told you that needs to go back to the Dairy Queen for some more wise owl commentary on oil and gas law.
Ron Hicks said:
For future reference, never sign a division order without first securing a lease. Once a division order has been signed, I'm told that legally you have accepted, more or less, the terms of the lease even though you never signed the lease; furthermore, by cashing the royalty checks you have further confirmed acknowledgment of the terms of the lease (all this unknowingly, unwittingly). This may be debatable. I'm guessing production began without securing a lease from you, so they are backtracing and covering their mistakes. $1500 is good but not knowing any details, could be much higher. PLEASE ask for 25% royalty. Do research, probably best to find a good oil and gas attorney.
Mr. Cotten, I don't recall saying that a division order was a ratification. However, in a situation whereby a mineral owner does indeed sign a division order on a producing well(s), receives royalty payments and cashes the checks, and this goes on for years AND the mineral owner never signed an oil and gas lease in the first place, OR the original oil and gas lease (signed in 1952 by great-grandparents) has long expired based upon it's own terms (for example, periods of 3 to 5 years with absolutely no production), then it can be argued that the mineral owner is acknowledging that the current operator is producing the well legally. This is based on a real situation I got very involved in. The original lease (1952) had been sold and/or transferred from one company to another many, many times, to the point that the current operator was producing the well(s) based on the original lease which, as I stated, had expired based on its own terms (more than a few times). BUT, because the newest operator was able to secure signatures on division orders from all the current heirs, AND all the current heirs had been cashing the royalty checks, then it could be argued that the original oil and gas lease from 1952 was valid and legal based on the 1.) signing the division orders; and 2.) cashing the checks. In actuality, the oil and gas company, in this case, was willing to admit that the lease they held had been passed along/transferred from one company to another without regard to the terms of expiration based on its own clauses, and was willing to renegotiate; however, legal counsel advised that were this to go to court, the chances that the current operator was operating the well legally might very well be upheld.
Tell me again, like I am 3 years old, how can the execution of a division order, which is an order of payment from the mineral owner to the producer/operator, without words of ratification, be construed as a ratification or acceptance of the terms of a lease unsigned.
I am baffled.
I don't see how I can be more clear. I will not address you as a 3 year old child, as you have requested. Sometimes we just have to learn to allow things to baffle us, and accept that.