Now that the amount of recoverable oil in the Bakken has doubled, and is probably still a low estimate, how will this effect the new leases in terms of dollars per acre?
For those who have only a few acres, probably not much effect.
John:
I agree with rw in that size of the acreage will continue to be major factor in determining the bonus amounts. I do believe that operators holding leases in de-risk areas will aim to drill faster if the lease is nearing the expiration date. Looking at the map, numerous leases in these de-risk areas are now HBP. Don't forget about the Eastern Montana area where large acreages remain undrilled. Good wells continue to be drilled in Richland and Roosevelt County areas and individuals holding large mineral tracts will probably be able to negotiate some great leases.
John,
When I look at the map and see the really prime spacings that do not have so much as a permit on them, I know without having to look further that those spacings are owned by an individual or a tight knit family group that has been holding out and may continue to hold out for years to come, waiting for the right offer. The value of what is there is no longer in doubt and the value could rise still higher with the advent of new techniques to produce even more of the oil in place.
I believe that the techniques are fairly mature, the operators have determined to a nicety the areas that are worth drilling with todays technology and any mineral owners who still hold out are doing so from the perceived inequality of the lease offers they have received. The announcement that there may be double the amount of oil in place has had little or no effect to the lessees offers. A really good well seems to have greater effect on offers in an immediate area. I believe lessees, while they may take the long veiw, denie that there is anything to negotiate beyond right now this year. Reserves doubling? Bah! That's crazy talk, probably never happen. I believe that it is almost certain to happen in the next 50 years if not right now. Lessees want to lease at the price of one well while they already have plans for 5 or 15 depending on the area. Patient, large acreage holders are going to wait until some operator decides that half a loaf is better than none.
If you have small acreage, you have the choice of either accepting what they offer after you try to negotiate it up, or you can say no and accept what the state says they must pay you untill your part of the well is paid off plus a 50% actual cost of drilling and completing the well. I have gone this route and I'm pleased with it.
I predict that the increase of recoverable oil in place will have little to no effect on lease offers in the short term. Five to ten years from now it may have some effect, but those will be the same people who could and are holding out because they can't be forced.
I agree with Charles that Eastern Montana is going to be very hot, because of the great wells recently drilled there and the number of leases that are about to expire.
I believe that the lessees will look at any great improvement in the amount of recoverable oil as a rising tide that lifts all boats and the fact that the mineral owners boat is quite a bit smaller and has a hole in it is no reason to pay him any more than before.
We have about 250 acres of mineral interests. A company signed 3 families of our relatives to a deal using their company contract. I told them I was going to take the contract to a lawyer just because I won't sign something without some advice first. The company has failed to send me a lease and seems to be stalling by passing me from one person to the next. I am starting to feel like Charlie the Tuna and wanted to know what if anything I need to do. Thank you for any advice.
Rodney, If you do nothing they will eventually have to send you a lease, really they don't but it would be extremely bad business not to. If they do not send you a lease offer and they force pool you, they have to pay you a royalty anyway. The royalty you would be paid is the weighted average of what everyone else in the spacing received or 16% whichever the operator elects. You can generally say 16% because not too many people lease for less and if they did they would have to have significant acreage to bring the average down. When the well is paid off and you become a working interest with probably 4 times the income after expenses, roughly equivalent to an 80% royalty, of course you would have alot of deductions that the leased mineral owners do not have.
Normally if the operator force pools you, you have a 50% actual cost of drilling and completing the well penalty, but that is only because normally the OPERATOR TRIED TO LEASE YOU and you refused. The operator MUST offer you a lease and or the opportunity to participate for your acres before they can petition for a risk penalty to be imposed.
Rodney, I'd say don't sweat it.
The basis for the increase in recoverable oil in the Bakken is based in science and permeability enhancement technology. Operators have risked hundreds of millions in the Bakken to quantify what is "mature" hydrocarbons by actually measuring the energy value rather than speculating on the hypothetical values based on science known at the time. The USGS has used new data to update hypothetical data from its earlier reports. Not all operators or oil field treatment engineers are created equal. Some are just better than others at understanding the deposition characteristics of the hydrocarbons, presence and bearing if natural fractures, and low-grade limestones within the separate zone of the Bakken. Exploitation of the physical phenomena has become less site specific than originally thought but has a long long way to go.
Operators are much more focused on how to efficiently and economically get the oil known oil out of the ground than what they have to pay for lease bonus. That is peanuts. As a mineral owner you may want to focus on dealing with who has demonstrated success at getting oil out efficiently then capturing your fair share of the produced product value. Mr Kennedy and others have studied the Bakken producers in detail and found a way to capture their fair share rather than hold a lease bonus auction. Focus on managing you minerals in your best interests as Mr Kennedy has. The increase in recoverable oil will materially and positively effect the well managed minerals for the long term. If you focus on lease bonus, you will get the best bite of the worst slice of the pie.
Gary L Hutchinson
MineralsManagment
I will quote Mr. Hutchinson because truer words were never spoken, "Not all operators or oil field treatment engineers are created equal". There are operators out there who drill a well to a price point, not the best well for the area and they may drill twice as many wells as their competitor and make it up in volume. Not to say that the company drilling the cookie cutter wells can't drill and complete an excellent well, just that they don't make the effort. Some companies seem to have an extremely competent and well knit team of engineers and while they are still subject to having a wellbore collapse or some other mishap at 10,000 feet down, if that does not happen, they will drill a superior well, designed for that spot, if not a masterpiece, at least an example of skilled artisanship. It makes a difference, often as much as 25% difference.
It could or should, but the cost of the oil is super high and many operators (the small ones in particular) are really hurting for lack of a way to get their oil to better markets. They need the pipeline. I don't think they will base royalties on potential, rather what the market will bear and competition is paying.
Hello! I have the rights to 50% of 360 acres in Burke county. I signed a contract in June of 2010, and have since had a well drilled and producing on half of it (adjacent section running under half of mine), leaving half available to be drilled. I am wondering what is reasonable to ask come next year should they not have drilled in that portion by then. I originally received $400 per acre royalty and get %18.75. Any thoughts? They are still burning off my NG, so I was wondering if anyone has any idea when the NG plant and pipelines will be completed, so they can quit burning profits LOL THANK YOU!!
---PS- I am working with LoneTree Energy and have my lease with Hess...any thoughts on either would be appreciated
Jennifer,
If you signed one LTE standard lease for for your entire acreage, you are most likely held by production (HBP) and won't be getting any further bonus. If you are getting checks from Hess, check the distribution decimal to see if all of your 180 net acres is being paid for on your production checks. If you aren't receiving checks yet, you will be getting a division order for approval. That Division Order may or may not include all of your acreage depending on the drilling unit size. In the meantime you can post your legal location and any number of folks on the forum can tell you if your acreage is in a unit or not. Some could even confirm the Division Order Calculation.
Jennifer, what Mr. Hutchinson says is true, if you do not have a pugh clause in your lease, even your non-producing acres are held by production from the acres that are producing. Read your lease and look for the pugh clause. If you are held by production on your non-producing acreage, all you can do is hope they drill it soon.
I checked and I am not being paid for all my acreage. Only half of it. I also contacted my landman and he said that I don't have a pugh clause and apparently am free to either re-lease the unused acreage to Hess or sign a top lease (?) with some other company when the lease is up or close to. I am a bit confused by that.
Gary L. Hutchinson said:
Jennifer,
If you signed one LTE standard lease for for your entire acreage, you are most likely held by production (HBP) and won't be getting any further bonus. If you are getting checks from Hess, check the distribution decimal to see if all of your 180 net acres is being paid for on your production checks. If you aren't receiving checks yet, you will be getting a division order for approval. That Division Order may or may not include all of your acreage depending on the drilling unit size. In the meantime you can post your legal location and any number of folks on the forum can tell you if your acreage is in a unit or not. Some could even confirm the Division Order Calculation.
Gary L Hutchinson
Minerals Management
"your Landman" may have been in a different business than petroleum land leasing before he became "your landman" To avoid further confusion, read your lease and see if it says something to the effect, "for so long thereafter as oil or gas is produced from any part of the PROPERTY" When you find the language you will not be confused but if it says something materially different, "friend" me and I will try to help you with the meaning.
My principle is to only rely on what a landman puts in writing. At the end of the day he only wants your signature on a lease. That's his job.
Jennifer Hill said:
I checked and I am not being paid for all my acreage. Only half of it. I also contacted my landman and he said that I don't have a pugh clause and apparently am free to either re-lease the unused acreage to Hess or sign a top lease (?) with some other company when the lease is up or close to. I am a bit confused by that.
Gary L. Hutchinson said:Jennifer,
If you signed one LTE standard lease for for your entire acreage, you are most likely held by production (HBP) and won't be getting any further bonus. If you are getting checks from Hess, check the distribution decimal to see if all of your 180 net acres is being paid for on your production checks. If you aren't receiving checks yet, you will be getting a division order for approval. That Division Order may or may not include all of your acreage depending on the drilling unit size. In the meantime you can post your legal location and any number of folks on the forum can tell you if your acreage is in a unit or not. Some could even confirm the Division Order Calculation.