Received AFEs from oil company on three wells completed nearly a year ago in McKenzie County, ND. Three more are permitted for pad. Offer was to "Participate" or "Not Participate". Due to my research I believe Non Consent (do nothing on my part) is the better financial avenue.
In 2004 oil lease, approx. 20-25 acres were accidentally omitted. I have read N.D.C.C. section but am confused when the oil company imposes 200% risk penalty or the 50% risk penalty.
Once AFEs brought to light the unleased 20-25 acres, the broker/landman offered a lease from the former oil company owners. But I do not want to take this option. Thanks for any input!
If it is a good well, a 200% penalty is not bad at all. I'm working now with a client who has a 300% penalty on six wells - and I have seen penalties much worse. You can do what you want - personally, I'd sit back like a fox behind a log and watch.
Under NDCC 38-08-08 working interest owners ("lessees") can be assessed a 200% penalty out of proceeds from production of the pooled spacing unit if they choose not to participate in the cost and risk of drilling and completion. However, mineral owners who choose not to lease are provided a cost free royalty equal to the weighted average royalty in the spacing unit agreed to by all those who leased their minerals. The remaining interest of mineral interest owners who choose not to lease is a working interest in the well and can be assessed a 50% penalty out of proceeds from production of the pooled spacing unit if they choose not to participate in the cost and risk of drilling and completion. In either case the paying owner(s) must make an unsuccessful good-faith attempt to lease the minerals or get the working interest to participate.
As the unleased owner of the mineral acres, you might have a 50% risk penalty, if the well had not payed out yet. If the well has already payed out, you could protest the risk penalty on the basis that there was no risk of the well not paying out because it already had. If said well has already produced 200,000 barrels of oil at the time you received the AFE, likely it had payed out. That would be for a top notch expensive well, a cheaper sand frack well might only need 100,000 barrels or even less.
I would not be interested in leasing either unless the well was miserable and I thought the future productive capacity of my acres was poor.
RW said "If the well has already payed out, you could protest the risk penalty on the basis that there was no risk of the well not paying out because it already had."
The wells have been paying out since Sep, 2013--close to 100,000 barrels to date. I just received the AFEs (over a year from date that drilling started.) Now they want me to sign AFEs to "Participate" or "Not Participate".
My research on "Non-Consent" leads me to believe I am better to do nothing (don't sign AFEs) which makes it NON-CONSENT. But from your response it looks like I should protest risk penalty to the ND Industrial Commission if oil company tries to impose risk penalty. Am I understanding all of this correctly?
What amount of risk penalty can the oil company imposed? The N.D.C.C. is a little hard to understand.
Thanks for your input!
100% of costs plus another 50%, or 150% of costs attributable to drilling and operations.