I just received a call from a representative of Continental. They would like to lease from me. I own very little rights 2.5 acres of mineral rights. Looking for advice, is it even worth it?
Township: 155 North Range: 95 West Section 1
They are located in the SE4. Williams County, North Dakota.
Terms:
1500 $/acre 3 year lease 20% royalty. I have no idea on any of this.
Mary:
Looking at the GIS map of your area, it appears that Continental already has a permit to drill in Section 1. The well name is the Vera 1-1H. The answer to your question is yes, it is worth it, but you need to go back to the negotiating table since it appears Continental is serious about this area. First, take your time and get the best lease terms. The 3 year and 20% royalty is the norm, but with your situation, I would negotiate in the area of 22% royalty and $2500/acre bonus. Just remember, you can shop around and lease to another operator even though Continental has the permit. I understand that 2.5 net mineral acres is small, but it will give you a small income for years to come. Again, take your time and get your best terms.
Mary,
In most cases, the first offer made is never their best offer. They typically make an enticing offer, and many people sign the first lease they’re offered.
Aside from the monetary amounts you speak of, be certain the terms in the lease are going to benefit you and your heirs for the duration of the possible wells drilled. You can learn a lot from reading this forum, and if you feel you need further help, that is also available. Pugh clauses and shut-in clauses are a start.
2.5 net mineral acres isn’t a lot, however, it can make even the slightest change in the amounts of royalty you can receive, with the right terms.
If Continental isn’t willing to up the royalty to 22%, I’d hold tight to $3000 an acre. The fact it’s already permitted means you have what they want. Don’t be pressured by their “timeline” as they will press you to sign on that dotted line asap. I would also require a check in hand, prior to turning over the signed lease you agree to.
There are several BLOG posts on the front page of this mineral rights forum, towards center of page. Several on clauses to require, some on how to make more money with leasing rights etc. I’d recommend reading through them all.
Good Luck
Thank you for responding so quickly. I will follow your advice and read up on it. Once they send me the lease I can review and may have a question or two… I am guessing $3000 an acre is a one-time payout not yearly and 22% would be yearly? Of course I am curious on what 20-22% generates moneywise on such a small amount. Is 20 dollars a year, 100, 1000? I am sure hard to answer any insight would help. This came to me completely out of the blue so I have zero knowledge. Thank you again
Snues said:
Mary,
In most cases, the first offer made is never their best offer. They typically make an enticing offer, and many people sign the first lease they’re offered.
Aside from the monetary amounts you speak of, be certain the terms in the lease are going to benefit you and your heirs for the duration of the possible wells drilled. You can learn a lot from reading this forum, and if you feel you need further help, that is also available. Pugh clauses and shut-in clauses are a start.
2.5 net mineral acres isn’t a lot, however, it can make even the slightest change in the amounts of royalty you can receive, with the right terms.
If Continental isn’t willing to up the royalty to 22%, I’d hold tight to $3000 an acre. The fact it’s already permitted means you have what they want. Don’t be pressured by their “timeline” as they will press you to sign on that dotted line asap. I would also require a check in hand, prior to turning over the signed lease you agree to.
There are several BLOG posts on the front page of this mineral rights forum, towards center of page. Several on clauses to require, some on how to make more money with leasing rights etc. I’d recommend reading through them all.
Good Luck
Mary,
The bonus offer up front is a one-time offer if they drill and get oil. If you had several areas of minerals and you had pugh clauses, then it could leave a tract of land undeveloped, in which you’d get another lease and bonus.
With your small amount, I’m guessing it’s the only tract, and if they drill a viable well, that will hold your lease for the lifetime of that well(s) if others are drilled. That means you’ll likely never get another bonus.
As for the royalty, at either 20% or 22%, that is the amount you’ll get for the life of the well(s). Checks are generally paid out monthly unless the production is low, or due to your small amount of net mineral acres, the check would have to amount to a certain dollar amount before they’d cut the check (such as $50) or maybe even a hundred. The first check you’ll receive, when it’s the start of the well and production likely at its highest, and that a couple months of production would have produced before the division orders and checks cut; you’ll likely receive them monthly for sure. The difference between 20 and 22% at that point would show slightly.
Over the long haul, as a sample of difference, if a total was 10,000 and your % was 20; you’d get 2,000. At 22% of the 10,000 you’d get 2,200. This seems like small potatoes and with 2.5 net acres it kind of is; however, if this well happened to last 35+ years, or the company drills 3 or 4 wells in that tract of land, it could very well add up to an extra grand or more per year. (The sample above is just straight math; with oil royalty, there would be taxes and other deductions as well.)
There is no “do overs” with leases, once production holds the lease, and wouldn’t you rather have that potential extra grand per year than to let the oil company have it? At 20% royalty, the oil company is getting 80%. On 2.5 net acres, I wouldn’t consider accepting only 20% a deal breaker, but be sure to hold tight on that bonus rate, as that payout will likely be a one-timer and likely to bring a sum of money you would never again see in one lump.
Feel free to ask any/all questions. Better to know now than to sign and find out later what you could’ve/should’ve done. As I said earlier, there are no “do overs” on a lease, so be certain it’s correct from the start. Don’t be afraid to ask for whatever isn’t on your lease; the first one they send out is the one they hope you will sign, as it’s the one that is most in their favor. They WILL send out corrections if you ask for them and they agree. Remember also, they’re salesmen and it’s their job to say no and convince you they mean it. Envision them high-fiving each other at the office if you cave in to their terms instead of the ones you want.
Thank you so much for your detailed reply. I just received the lease. Somewhat confusing to me. It states 160 Gross acres and Net of 0.50. Bonus per acre $1500.00.
The total net acres is 2.50 but there are five of us. We all received the same lease so I am guessing they divided the 2.50 acres by 5. They sent each of us a copy of a check for $750.00 to be paid on a signed lease. Not sure if we each receive $750.00 or a total of $750 to be divided by 5. The verbal offer was 1500 per acre sign on bonus and 20% royalty. I am confused on the gross acres.
Also if anyone is willing to look at my lease let me know!
Snues said:
Mary,
The bonus offer up front, is a one time offer, if they drill and get oil. If you had several areas of minerals, and you had pugh clauses, then it could leave a tract of land undeveloped, in which you’d get another lease and bonus.
With your small amount, I’m guessing its the only tract, and if they drill a viable well, that will hold your lease for the lifetime of that well(s) if others are drilled. That means you’ll likely never get another bonus.
As for the Royalty, at either 20% -22%, that is the amount you’ll get for the life of the well(s). Checks are generally paid out monthly unless the production is low, or due to your small amount of net mineral acres, the check would have to amount to a certain dollar amount before they’d cut the check (such as $50) or maybe even a hundred. The first check you’ll receive, when its the start of the well and production likely at its highest, and that a couple months of production would have produced, before the division orders and checks cut; you’ll likely receive them monthly for sure. The difference between 20 and 22% at that point would show slightly.
Over the long haul, as a sample of difference, if a total was 10,000 and your % was 20; you’d get 2000. At 22% of the 10,000 you’d get 2200. This seems like small potatoes and with 2.5 net acres it kind of is; however if this well happened to last 35+ years, or the company drills 3 or 4 wells in that tract of land, it could very well add up to an extra grand or more per year. (the sample above is just straight math, with oil royalty, there would be taxes and other deductions as well)
There is no “do overs” with leases, once production holds the lease, and wouldn’t you rather have that potential extra grand per year, than to let the oil company have it. At 20% royalty, the oil company is getting 80%. On 2.5 net acres, I wouldn’t consider accepting only 20% a deal breaker, but be sure to hold tight on that bonus rate, as that payout will likely be a one timer, and likely to bring a sum of money you would never again see in one lump.
Feel free to ask any/all questions. Better to know now, than to sign and find out later, what you could’ve/should’ve done. As I said earlier, there are no “do overs” on a lease, so be certain its correct from the start. Don’t be afraid to ask for whatever isn’t on your lease, the first one they send out, is the one they hope you will sign, as its the one that is most in their favor. They WILL send out corrections if you ask for them and they agree. Remember also, they’re salesmen and its their job to say no, and convince you they mean it. Envision them high fiving each other at the office, if you cave in to their terms, instead of the ones you want.
Hi,
Well we signed a lease months ago and received the sign on money. I am wondering how I would check on this well and its production and how I can calculate the profit if any. We own a small percentage 2.5 acres.
charles s mallory said:
Mary:
Looking at the GIS map of your area, it appears that Continental already has a permit to drill in Section 1. The well name is the Vera 1-1H. The answer to your question is yes it is worth it but you need to go back to the negotiating table since it appears Continental is serious about this area. First, take your time and get the best lease terms. The 3 year and 20% royalty is the norm but with your situation, I would negotiate in the area of 22% royalty and $2500/acre bonus. Just remember, you can shop around and lease to another operator even though Continental has the permit. I understand that 2.5 net mineral acres is small but it will give you a small income for years to come. Again, take your time and get your best terms.
Mary:
There is a well on Section 1, operator is Continental Resources; well name is the Vera 1-1H. This is a confidential well which means that info will not be available until 6 mos. after the start date. You can go to the NDIC website, click on GIS map (left side of page); click on Section and plug in your township, range, section. Your minerals are located in the Beaver Lodge Field. Good luck on your well.
Mary Burna said:
Hi,
Well we signed a lease months ago and received the sign on money. I am wondering how I would check on this well and its production and how I can calculate the profit if any. We own a small percentage 2.5 acres.
Township: 155North Range: 95 West Section 1they are located in the SE4. williams county NDterms:1500 $/acre 3 year lease 20% royalty
charles s mallory said:Mary:
Looking at the GIS map of your area, it appears that Continental already has a permit to drill in Section 1. The well name is the Vera 1-1H. The answer to your question is yes it is worth it but you need to go back to the negotiating table since it appears Continental is serious about this area. First, take your time and get the best lease terms. The 3 year and 20% royalty is the norm but with your situation, I would negotiate in the area of 22% royalty and $2500/acre bonus. Just remember, you can shop around and lease to another operator even though Continental has the permit. I understand that 2.5 net mineral acres is small but it will give you a small income for years to come. Again, take your time and get your best terms.
Mary, your well was "spud", that is they started drilling it on 3-12-2013. These things take time. I'm fairly certain that Continental has their own dedicated fracking crews and while the well could be drilled and completed and producing, the operator is usually 1 month behind reporting sales so I don't think there is any information that you could get at the moment.
All permits are considered to be confidential wells in ND. The operator usually asks for confidential status after they have drilled to total depth of the well and the confidential status lasts for 6 months from that point.
The operator has 150 days after FIRST SALES, not production, in ND to make payments OR the operator must pay interest if you have good/marketable title, which is probates done if necessary and a deed recorded in your name in the county in which the minerals lie. If you do not have good title, the operator holds and uses your royalty money interest free until you do get good marketable title.
The operator must report sales of oil and gas and the sale of oil and gas is public record and can be found in general statistics on the NDIC O&G Division site. This is where it gets, not so much tricky as tedious, to search for a wells production in general statistics because wells are loosely grouped by field and the fields don't seem to be in any particular order and there are probably 15,000 wells reporting production. The operator reports a month behind and the state posting the reports can be weeks behind that. I would suggest you wait a month or two before even searching, if you want to, to have a much better chance of the search bearing fruit.
What you will be searching for would be your operator, field and your wells name, Continental, VERA 1-1H, BEAVER LODGE field. Your well's file number is 24327. Like I said, give it a little time and good luck with your well.
Thank you so much. This is so helpful. I am amazed at how detailed your answer is. I really appreciate it! Have a great day!