Well Participation Questions

Question: We do not have a well and own 10 mineral acres, but I am looking at a lease offer in the area of T158N R94W where a spud date is mentioned in April 2020. If I signed a 20% lease on this first well, does that force me to be subject to this same lease on every well in the future in this pool. Or, could I someday non consent or participate on future wells if I so decide, instead of lease? Does this lease tie me into leasing this and every well drilled over the next 20 plus years?

That depends on what language you are able to negotiate into your lease. The standard lease will tie up the entirety of your acreage for the primary term (3 years, 5 years, etc) and as long thereafter as oil or gas is produced. This means you won’t get to lease your land again until any/all wells drilled stop producing. Depending on your gross acreage, it may be worth negotiating a pugh clause into the lease, where any acreage not included in a drilling unit gets released at the end of the primary term. Keep in mind that if you have 10 net acres out of 10 gross, any acreage you have would likely be unitized. But if you have 10 net out of 1000 gross, you’ll definitely want any non-producing acreage to be released at the end of the primary term.

I am currently non-leased with 10 net acres, no well. Hess has a well planned and is seeking a lease. If I choose to go non-consent and am not currently leased, would this be better long term, say 16 future wells or so, than going with a 20% lease? I am trying to get my mind around this. Please help. Thank you.

If you elect to participate, you’ll want to make certain you are familiar with the contract terms that go along with the election. Generally, an election to participate will also carry a penalty for not consenting to the drilling of each well. Depending on the terms of the agreement, you may not be able to receive royalties on a well until it pays out 2x-5x if you don’t put the money up front. Fracked wells make a large portion of their money on Initial Production.

If you had a small operator trying to make a run at it, I’d say you’d be better off leasing at a large bonus. Seeing as you’re dealing with Hess, if you can financially afford to keep up with their drilling program, I’d participate and then consent to every well they want to drill.