Our family inherited ~4 acres of mineral rights in North Dakota. We’re an unleased mineral owner as our relative had passed away and was unable to sign any agreements when wells were being drilled. Since finalizing probate, we’ve been approached by a couple landmen with clients who want to lease as a working interest and provide a bonus ($2.5K/acres) and royalty % (20%) to us.
As I understand, this may be advantageous for us as we would no longer incur expenses associated with being an unleased mineral owner and paying pro rata expenses. But what is the benefit of a company stepping in to be the working interest and incurring expenses? Tax benefits?
Hoping to understand what is going to net us the most cash while also being the most passive option?
Your most passive option is as a royalty lease only. There may be a risk penalty on it until the well pays out. We usually do that and it has worked for years. No liability.
Working interest some pros, but many cons. Pros are perhaps a higher royalty, but also not for the faint of heart unless you have deep pockets. You may also have to pay for insurance, specialized accounting, legal advice and perhaps setting up an LLC to put any working interest into a separate entity so that it protects your personal assets. Working interest owners may be liable for blowouts, environmental cleanup for decades (hence the insurance). You will have bills constantly coming for not only the drilling but for operating expenses-again for decades. These could impact your heirs. Also, you may think you are signing up for one well, but then get hit with bills for multiple more wells and this can cause all sorts of headaches for heirs down the road. Get good legal advice before agreeing to a working interest. A company may be a working interest owner and just want to lease you for royalty only. I wasn’t quite clear on your question. Talk to your accountant about tax consequences.
Hi, I own some working interests, some non-consent or “carried interests”, some leased interests so I could probably give you some knowledge on what you are looking at but I would need to know a little more. Garbage in, garbage out sort of thing, the less I know, the lower the quality of advise anyone can give, really.
I can tell you this, If a number of you inherited an undivided interest in a total of 4 net mineral acres and each one of you had the headaches of being a working interest, you would be better off leased.