Could anyone expand on the well life expectancy in regards to these Bakken Formation wells. I have read that 75% of the lifetime production occurs in within the first three years. After that time, only a small profit is realized for the next six to seven years by downhole stimulation procedures.
Well life expectancy is inextricably linked to the profit factors:
1. Product Price received, and
2. Cost of operations to maintain and market production.
Consider including in your lease form a minimum royalty payment, so that near the end of the life of the well, your lands are not held by production with you only receiving a royalty payment of $15.00 per year, or the like.
Thank you! Mr.Cotten. That is an elegant solution.
Buddy Cotten said:
Well life expectancy is inextricably linked to the profit factors:
1. Product Price received, and
2. Cost of operations to maintain and market production.
Consider including in your lease form a minimum royalty payment, so that near the end of the life of the well, your lands are not held by production with you only receiving a royalty payment of $15.00 per year, or the like.
Best,
Buddy Cotten
Buddy Cotten said:
Well life expectancy is inextricably linked to the profit factors:
1. Product Price received, and
2. Cost of operations to maintain and market production.
Consider including in your lease form a minimum royalty payment, so that near the end of the life of the well, your lands are not held by production with you only receiving a royalty payment of $15.00 per year, or the like.
Best,
Buddy Cotten
Mr. Cotten:
Is it common practice to have a minimum royalty payment in a lease such as you descibed? Sounds great if the other party would agree to this.
charles s mallory said:
Buddy Cotten said:Well life expectancy is inextricably linked to the profit factors:
1. Product Price received, and
2. Cost of operations to maintain and market production.
Consider including in your lease form a minimum royalty payment, so that near the end of the life of the well, your lands are not held by production with you only receiving a royalty payment of $15.00 per year, or the like.
Best,
Buddy Cotten
Common practice, no. Whether it is common practice or not is irrelevant.
For my leases, it is required. I set the minimum royalty to be equal to the delay rental payment on the lease form.
I am in a much different situation that most lessors.
First, I know what the oil companies can agree to.
Second, I do not deal with a field broker. He is not a decision maker. I jack with them quite a bit, until the company man has to step in.
Third, the minerals will be there for me and my heirs if I do not lease to XYZ oil company today.
Fourth, they are my minerals and I lease them on my terms, not theirs. I am free to set the terms of leasing and the lease contract itself. Again, they are my minerals. If the potential lessee says that they cannot do that, I thank them for their offer and will buy them a cup of coffee whenever they want to come back to talk, if ever.
I had a client 3 years ago (actually, still my client) who was approached concerning a lease. After off and on for 2 months, I finally threw up my hands and told my client that my recommendation was to reject the offer. It was not a huge amount of money, around $21K. They followed my advice. Less than one year later, I negotiated a lease on the same lands that the bonus amount was over $50K. So, sending a landman down the road is not necessarily a bad thing. It could have gone the other way and they had the guts to suffer the loss if need be. Oil companies DO know that the fear of losing the bonus is a huge motivator for the landowner to sign.
Incidentally, the companies that I deal with on a regular basis know that I do not bluff. I set a price and a lease form and that, is essentially, that.
By the way, I have the same philosophy when I represent oil companies.
Mr. Cotten:
Is it common practice to have a minimum royalty payment in a lease such as you descibed? Sounds great if the other party would agree to this.
charles s mallory said:
Buddy Cotten said:Well life expectancy is inextricably linked to the profit factors:
1. Product Price received, and
2. Cost of operations to maintain and market production.
Consider including in your lease form a minimum royalty payment, so that near the end of the life of the well, your lands are not held by production with you only receiving a royalty payment of $15.00 per year, or the like.
Best,
Buddy Cotten
Mr. Cotten:
I will make this post part of my notes. I have leased several times when I felt that I should hold out as time was on my side and the minerals are mine. I consider this leasing a learning process and I gain a great a deal of knowledge from people like you. I retired from the oil business but I was involved with the drilling side and not the leasing end. We inherited our minerals in Montana and North Dakota several years ago and since then I have tried to increase my knowledge in this area. Thanks again for your input in regards to my post.
Charles S Mallory
Buddy Cotten said:
Common practice, no. Whether it is common practice or not is irrelevant.
For my leases, it is required. I set the minimum royalty to be equal to the delay rental payment on the lease form.
I am in a much different situation that most lessors.
First, I know what the oil companies can agree to.
Second, I do not deal with a field broker. He is not a decision maker. I jack with them quite a bit, until the company man has to step in.
Third, the minerals will be there for me and my heirs if I do not lease to XYZ oil company today.
Fourth, they are my minerals and I lease them on my terms, not theirs. I am free to set the terms of leasing and the lease contract itself. Again, they are my minerals. If the potential lessee says that they cannot do that, I thank them for their offer and will buy them a cup of coffee whenever they want to come back to talk, if ever.
I had a client 3 years ago (actually, still my client) who was approached concerning a lease. After off and on for 2 months, I finally threw up my hands and told my client that my recommendation was to reject the offer. It was not a huge amount of money, around $21K. They followed my advice. Less than one year later, I negotiated a lease on the same lands that the bonus amount was over $50K. So, sending a landman down the road is not necessarily a bad thing. It could have gone the other way and they had the guts to suffer the loss if need be. Oil companies DO know that the fear of losing the bonus is a huge motivator for the landowner to sign.
Incidentally, the companies that I deal with on a regular basis know that I do not bluff. I set a price and a lease form and that, is essentially, that.
By the way, I have the same philosophy when I represent oil companies.
Best,
Buddy Cotten
Charles s mallory said:
Mr. Cotten:
Is it common practice to have a minimum royalty payment in a lease such as you descibed? Sounds great if the other party would agree to this.
charles s mallory said:
Buddy Cotten said:Well life expectancy is inextricably linked to the profit factors:
1. Product Price received, and
2. Cost of operations to maintain and market production.
Consider including in your lease form a minimum royalty payment, so that near the end of the life of the well, your lands are not held by production with you only receiving a royalty payment of $15.00 per year, or the like.
Best,
Buddy Cotten
Dear Mr. Mallory,
If they do not agree to minimum royalty, another option would be to define "paying quantities" specifically, such as "...paying quantities, as used herein, shall be revenue sufficient, after deduction of all royalties, production or severance tax, overriding royalties, production payments, and the costs of daily operations, to return a profit of 15% over any six (6) month period."
Since I offered language, I will also offer a disclaimer. I am not an attorney and do not offer legal advice. I can only offer general business advice and encourage all to seek the representation of competent council if you are not entirely confident in your actions.
charles s mallory said:
Mr. Cotten:
Is it common practice to have a minimum royalty payment in a lease such as you descibed? Sounds great if the other party would agree to this.
Mr. Cotten:
I will take note of that language and include it in our next lease agreement if we get to lease again. Thanks for your response to my question.
Buddy Cotten said:
Dear Mr. Mallory,
If they do not agree to minimum royalty, another option would be to define "paying quantities" specifically, such as "...paying quantities, as used herein, shall be revenue sufficient, after deduction of all royalties, production or severance tax, overriding royalties, production payments, and the costs of daily operations, to return a profit of 15% over any six (6) month period."
Since I offered language, I will also offer a disclaimer. I am not an attorney and do not offer legal advice. I can only offer general business advice and encourage all to seek the representation of competent council if you are not entirely confident in your actions.
Best,
Buddy Cotten
charles s mallory said:
Mr. Cotten:
Is it common practice to have a minimum royalty payment in a lease such as you descibed? Sounds great if the other party would agree to this.