I just found out about my mineral rights last month. Am I entitled to royalties from production of oil and gas prior to the time of discovery?
David, if you owned the minerals and just now found out that they drilled a well, they still owe you from the first barrel produced. If you signed a lease and they were producing before the lease, I'm sure the lease was back dated to before production began so all they would owe you would be the royalty % and any bonus per acre.
I am curious now if you are leased or not. Most people who are leased just put it out of their minds and wait for checks to come, until the checks don't come, as they sometimes don't for various reasons such as a probate needing to be done.
R W Kennedy,
There has not been a lease signed. I and 4 others have discovered we are heirs to these mineral rights. We have been in touch with a lawyer in order to effect a lease. We are just in the beginning stages.
During the discussion I had with one of the heirs, this question of whether we have rights to productive wells prior to discovery came up. So do we or do we not have rights to royalties prior to discovery under these circumstances?
D Latta
r w kennedy said:
David, if you owned the minerals and just now found out that they drilled a well, they still owe you from the first barrel produced. If you signed a lease and they were producing before the lease, I'm sure the lease was back dated to before production began so all they would owe you would be the royalty % and any bonus per acre.
I am curious now if you are leased or not. Most people who are leased just put it out of their minds and wait for checks to come, until the checks don't come, as they sometimes don't for various reasons such as a probate needing to be done.
You do have rights to royalty whether you lease or not. The state mandates the weighted average royalty of what everyone else signed for in the spacing, or 16% WHICHEVER THE OPERATOR ELECTS, it's the law. THIS IS NOT TO SAY THAT THE OPERATOR WILL PAY YOU WHAT HE OWES YOU TO DATE UNTIL HE HAS FAILED TO GET YOU TO LEASE AND UNTIL YOU HAVE DECLINED AN OFFER TO PARTICIPATE. The operator is not going to give you your money in time for you to decide to participate in some or all of the acres. In fact, if you decide to go non-consent, this lease negotiating and then waiting on the AFE (participation offer) are only going to delay the point at which you would receive your 16%. If you do not lease or participate, you will be non-consent and receive 16% from the first barrel, the other 84% of production attributed to your acres will go to paying for your part of the well and production costs and a 50% penalty of the actual cost of drilling the well.
They are probably offering a higher royalty than 16% and the question would be WHY SHOULDN'T I TAKE IT? The answer is, some of these wells are extremely profitable and could pay for themselves and the penalty in two to 5 years or less from which point you would receive 100%, not 16.67%, not 18.75%, not 20% but 100% less the cost of production which can be extremely low, a couple of dollars per month per acre in some cases. You could collect 16% for a few years then start collecting 100% less the cost of production.
Not to say that it's always in your best interest to not lease, if the well/s are poor, it could be a long time before the well pays out and retires the penalty. If the well were to run dry just as it was paying off the penalty, you would have missed out on a higher royalty and bonus. Which way is best could be determined by how productive the well/s are, how much they cost to drill and a reasonable expectation of when the wells could be expected to pay out and retire the penalty. If the well/s can pay out and retire the penalty in 5 years or less, I would be happy being non-consent because that means 10 to 25 years of 100%.
I have a well in a good spot that has produced over 15 million dollars in 16 months and should have the penalty retired soon, my brother and I turned down $3,000 per acre bonus and 20% royalty to be non-consent in this well.
The questions are, how good are your wells? How much did your wells cost? How long before you might receive 100% less cost of production? If it's ten years or more I would say negotiate the best lease you can because the well/s could have declined to the point that being non-consent might not be worth the hassle.
I suggest you read the ND Century Code 38-08-08, read it until you understand it, it's plain language but may have unfamilliar terms.
Take anything a landman says with a 25# block of salt. Do not assume that a lawyer has only your best interest at heart. I have encountered several lawyers that wanted to broker a deal for me instead of securing my rights as I asked and paid them to do. I have heard the story several times of a lawyer telling their client that they can sign the lease that was horribly against their interest. One of the lawyers I was going to hire even told me of the horrible bargain he struck for the lease of his own minerals, I did not hire him so he could do the same for me.
If you want my opinion of your well/s, just give me the legal description and I will let you know what I think and why I think it.
Good luck!
R W Kennedy,
So, if I understand you correctly, for non-consent to exist, we must have both failed to lease AND declined to participate. If we strike a lease with the operator, then participation is not necessary. Is that right or not?
Correct, leasing makes participation irrelevant, because you could not then participate even if you wanted to and leasing is the act of transferring your rights to someone else so your consent is no longer necessary. If you lease you should receive the bonus. Royalty should follow unless you need to do a probate. If there is a probate that needs to be done you may not receive any royalty until it is done and you make the operator legally aware that it is done. The operator may still be slow to pay after that, the worst that could happen is that the operator would owe a little interest.
David Latta said:
R W Kennedy,
So, if I understand you correctly, for non-consent to exist, we must have both failed to lease AND declined to participate. If we strike a lease with the operator, then participation is not necessary. Is that right or not?
If you are just checking up, great, but if you are having to ask such questions here, your legal representation may not be doing a great job. Since your lease is until the operator can no longer get production from your minerals (possibly 100 years or more), you are likely to only get one shot at this, I think it wise to exhaust the possibilities. There is no renegotiation. No, do over.