Does anyone ever refuse to lease thei...
Kennedy 817

Hurst, TX

#108 Feb 23, 2013
Heirs, operators trade leases. Chesapeake made more money from leasing early in areas with their "Army, of landmen" not paying the lease bonuses before selling the leased acres to a competitor for up to 100 times what Chesapeake paid for the acres, then paying the paltry lease bonus. They made more money faster with less investment than they ever could have had they actually drilled the minerals. Chesapeake only got in trouble because the bottom fell out of the [dry] natural gas market and they kept large amounts of the land leased for gas development. If Chesapeake had kept the oil properties they would be king now instead of needing huge loans at big interest rates and selling off parts of the company to make the loan payments cheating mineral owners out of their royalty and basically scratching for every dime they can get. Chesapeake stays away from gas properties unless they can get them dirt cheap now. they mostly drill for oil now with some success. Chesapeake did try a forlorn hope at oil wells in ND. They would not pay the price per acre in good areas, they went for cheap leases in Stark and Slope counties and failed miserably, so bad that they didn't bother to complete the wells they drilled.
Illinois heirs

AOL

#109 Feb 24, 2013
Kennedy: I know that anything drilled or worked on is still in the primary lease. What I'm talking about is the re-leasing aspect that you and I have been discussing and I felt that more money and better terms on a re-lease would be so much more adventageous for us in those coordinates.

Our decimal interests are so low that we don't make much in royalties. for instance:
.00001121; .00001821; .00006700; .00003254 and .00002396.

Is that because of the quantity of the acreage drilled on or the amount of mineral owners in that acreage, or because of our heir shares divided?
Between the decimal interests and the 3/16 royalties it is very confusing and I just don't get it.

I am thinking I know enough to be dangerous but really not knowledgeable and don't want to shoot ourselves in the foot over NGL expenses and not leasing, etc. etc.
Kennedy 817

Hurst, TX

#110 Feb 24, 2013
Heirs, you need not worry about the NGL's, in ND the wells are poor producers of gas, the gas is very rich, but there is just not enough of it to have great effect.

Your interests are very small. The largest,.000067 is less than 1/2 [.457] acre unleased. The wells are wildly profitable or you would receive checks like my cousin who frames them and places them on the wall because they are not worth cashing.

Heirs, you are not going to make a huge amount of money from those small interests no matter what. To an extent, you are the victims of greed, the operator's and the state's. The operators have been doing what we call the land grab. They drill one well in a 1280 or two wells in a 2560 acre spacing and that few wells can not effectively drain that much acreage. People whose acres are not even being drained are being paid royalty from the oil of those who are being drained so the operator can hold all of the unproductive acres and not have to lease the acres over and over. It does not matter whether you are the one being drained or the one not being drained, both are victims. If you are the drained, your pocket is being picked to pay someone else. If you are not being drained, you are being denied the chance to lease your acres again for larger bonuses and royalty %. Both are being paid pitifully small amounts. continued
Kennedy 817

Hurst, TX

#111 Feb 24, 2013
Heirs, the operators reason for wanting to hold more land for future drilling frozen at lower royalty and not having to lease the same acres again and again is obvious, but why would the state cooperate?

The answer is that the state makes more money off your oil than you do. Your royalty of 3/16 or.1875 bears post production costs that can lower your royalty to .1675 production and severance tax is 11.5% combined add in state income tax, for you and the workers on the well, fees from the operator, the state makes more from your oil than you do and they want that money, they will let the operator do anything to you so they, the state, can get that money.

Your area, even Lost bridge is good enough that they will drill more wells before too long. If you are in that 2560 we spoke about before with just two wells, it will get better if they add two to 6 more Bakken wells and hopefully 4 or more Three forks. The really bad thing about the land grab is that the operator can drill these wells at their leisure. It's in the operators best interest to not drill the new wells too soon. Every day they put off drilling a new well is a day longer they will be holding the acres. The acres and the oil under them are an appreciating asset. The operator makes money as the acres appreciate whether they produce the oil or not. You, on the other hand only make money when the operator produces and sell your oil. Your interest is small, your royalty on your interest is small, you would think that the least they could do would be to properly develop the extremely oversized spacing the state allowed them to place you in. continued
Kennedy 817

Hurst, TX

#112 Feb 24, 2013
Heirs, on your leased producing acres, there is little you can do but wait for new wells to be drilled, anything else, like selling the acres will only lose you even more money long term. If the operator only drills a new well every 5 years, due to well decline it may not make much difference to your checks but new wells is about the only thing that will help, along with the fact that the new wells are better and are in smaller than 2560 acre spacings. Reduce the acres in the spacing by 1/2 and everyone gets double the royalty per acre. If the operator will just drill the 6 to 8 wells per spacing necessary, possibly 16 wells in the lost bridge 2560, you would be receiving the maximum benefit of your lease. The best thing is to have never leased anything, but who knew? I sure didn't until about 3 years ago. I was paralyzed and in horrible pain and I threw myself into the study of my oil and gas interests to take my mind off it, sometimes 16 hours a day. I had some great professionals who helped me, not by giving me the answer but by telling which direction to search in and I learned more than what I was actually looking for along the way. I started looking for answers to other people questions and learned even more.

Heirs, if as a group, you have a significant amount of acres in a good area 5 to 10 net acres, I would say that as a group you could still be unleased and ay least get the maximum benefit from that. It does not have to all be in one spacing. It makes little difference if you are managing 1 or ten different interests, that is why companies try to buy each individuals minerals under their house in subdivisions. The operator does most of the work because he has to, because you can't have 10 minority interests driving the bus. It's not that different from being leased.
illinois heirs

AOL

#113 Feb 24, 2013
Kennedy: I'm going back and forth in the TOPIX sites, so I hope you don't mind. Well, it gets to the point with these minerals and our paltry percentages that we are trying to get all we can up front in a new lease because we get so little in the royalty check. I look constantly for new wells - 2 more will soon become active. That will bring our number to 12 producers. So, therefore, what good is negotiating a 20 percent of anything rather than 3/16?
Kennedy 817

Hurst, TX

#114 Feb 24, 2013
Heirs, when it's all drilled out, you would be glad of 7% more money per check for as long as it produces. There is nothing that says you could not get both 20% and the larger bonus. If the acres are in the better area you would want to start high 22% royalty and grudgeingly et them talk you down to 20% royalty but only for more bonus. If you want leverage on that, tell them it's so small yo will just participate. They know that people are unlikely to pay $80,000 for 10 acres participation but a half acre?$4,000 would be alot more likely. Hold their feet to the fire in negotiations.
illinois heirs

AOL

#115 Feb 24, 2013
Kennedy: I get it. Thanks for the advice and knowledge. Too bad we didn't know what we were doing years ago, but I did negotiate more than they came in with. At the time it was probably not too bad a deal but the oil companies were licking their chops. Little did we know. But now we have the evidence and can do better.
Illinois heirs

AOL

#116 Feb 26, 2013
Kennedy: I am mathematically challenged. What I'd like to know is this: I don't know what 20 percent looks like in a lease. Is it .20 or 1/20 or 20/100 or 1/5 ? Isn't this weird?
Kennedy 817

Hurst, TX

#117 Feb 26, 2013
Heirs, 1/5 or 20%,.20 would also be correct but rare because decimal points can be hard to see. 20/100 would be correct but I have never seen it expressed that way in a lease.

Stay away from 1/20 because that would be 5%.

Oil math is weird anyway.
Illinois heirs

AOL

#118 Feb 26, 2013
Kennedy: I'm glad I asked about that. I haven't heard from the landman yet about re-leasing. He might have discovered we don't have as many acres left as he thought. Anyway, it occurred to me that they could write something that looked like 20 percent but in reality is only the 5 percent and I wouldn't be the wiser. Should have studied math instead of the boys. ha ha
Illinois heirs

AOL

#119 Mar 1, 2013
Kennedy: Who or what determines the decimal interest? Is it an offspring of the 3/16 royalty in the lease? I have not seen any lease that tells what the decimal will be. Only see it on the royalty invoice. For instance,.00001121 where does that come from? It is absurdly low.
Can this also be negotiated as well as the 20 percent?
Kennedy 817

Hurst, TX

#120 Mar 2, 2013
Heirs ,unleased your decimal interest is determine by the number of acres you have in the spacing. Divide 100 by 1280 to get 0.078125 then multiply by net acres in the spacing. Lets say 5 acres X 0.00078125 = 0.00390625 just under 4 thousandths of a well spacing.

If you are leased, multiply the net acres decimal interest number by your royalty percentage number, once again for 5 acres =0.00390625 X .20 [20%]= 0.0007812 Just under 8 ten-thousandths of a well spacing, or less than 8/10ths of an acre.
Illinois heirs

AOL

#121 Mar 2, 2013
Thank you Kennedy. I will try to work the math on this. My late husband's cousins and I will be having a meeting this month and your information will be very enlightening for them. I will try to have an interesting presentation for them with maps from the GIS showing the well locations and all those crazy pipelines! Also, I printed out what looks like squiggle lines at Alkali Creek which must be their horizontal drill attempts as I clicked on several different symbols at the right.
All this effort for so little royalties, but to me it is fun and my kids are quite interested. After all, it is theirs too, eventually.
Illinois heirs

AOL

#122 Mar 3, 2013
Kennedy here is what I just wrote and lost: I tried your formula using 100 divided by 1280 x 5.862 net mineral acres x .1875 RI =.085869.
My decimal interst is .00001821. What did I do wrong? This is frustrating.
Kennedy 817

Hurst, TX

#123 Mar 3, 2013
Heirs, I just lost my reply. I apologized for my error of not correcting the formula at one point although I did the second time I wrote it and explained that I am not using a scientific calculator so it cuts the end off numbers if I don't delete some zeros from the equation and add them back in later..00078125 was correct for a 1280.

I then went on to do the calculation a different way. 5.862 acres divided by 1280 =.0045796 X .1875 =.0008586 my calculator cuts off the 9 at the end of it. As you can see it works either way to the same result, in math this usually means that you have it right. I think you hav something different going on that we are not getting into the equation.

Possibly not all of your acres are in the same spacing? You would have to figure each wellspacing separately and add them all together to arrive at the correct amount of net acres. You may have a 2560 acre spacing for part of it. Not all spacings are exactly 1280 or 2560, those on the north or west side of the township can have correction lots added because we are trying to impose a square township on a round surface, the Earth.

Operators also sometimes use their own "tract" participation decimal numbers and I have not a clue how they are arriving at those numbers, and I don't think they do either.

I won't be able to solve this for you because I don't have access to everything. I suggest you do the calculations in reverse for each spacing then add all of the results to see if it coincides with your net acres. If it won't add up, it's possible the operator wuld explain how they arrived at their numbers, but I wouldn't hold my breath. About the only thing you could do is audit the oerator, far too expensive an option for what you would get back. If someone doing an audit wants you to pay your proportionate share of costs, I would say do it, you might get $200 for your $20 proportionate participation in the audit. Sorry For confusion about the zeros.
Kennedy 817

Hurst, TX

#124 Mar 3, 2013
Heirs, to reverse the equation, royalty of .1875 = 5.33333 to infinity times your decimal interest of .00001821 =.000097 X 1280 = .12416, slightly more than 1/10th of an acre. This is how much they are saying you own.
Illinois heirs

AOL

#125 Mar 4, 2013
Kennedy: I suppose it a waste of our time trying to figure this out. I have no clue as to what the oil companies have going on. All I know is what acreage they write on the check stub. Suffice it to say, we got better things to do with our time!!
There isn't enough money in this whole thing for me to worry about and I'm probably putting too much effort into it, but I will say I've learned a thing or two from you. And I thank you for that.
We heirs will have an excellent meeting next week.
Yankee

Ayer, MA

#127 Mar 16, 2013
GREED!
kennedy 817

Hurst, TX

#128 Mar 16, 2013
Yankee, I agee, the oil companies are greedy. In sats like Oklahoma they have laws so that if you won't lease to them, the state will force a lease on you. I call that greed.

In ND the law lets the operator produce your minerals, you get a moderate royalty from the first barrel 16% until the operator recovers the cost of your part of the well plus a 50% of cost of drilling and completing the well risk penalty for his profit. In this situation, the operator may make 20% of the value of all of the oil produced, leaving the rest for the mineral owner.

The numbers percentages are familliar, it's exactly the reverse of the offer that a mineral owner probably declined. I believe that the ultimate test of fair in business or in just cutting a cake is "You cut and I will pick which part I want, or I cut and you get to pick". If the lessee were not so greedy to begin with, they probably would have had a lease.

A lease bonus is nothing more than a bribe to entice you to sign a contract that is against your best interest if you actually do have oil. Most of the Bakken can be profitable, just not all of it is profitable with land grabbing wasteful 10,000 ft lateral wells where the field pressure in the ground won't support them. If you want an investement tip, buy acres where the 10,000 ft lateral wells are poor because eventually a short lateral well will be drilled that is a moneymaker because it won't have to pay off over a mile of expensive wellbore with expensive completion that became useless after the first 6 months, roughly 40% of the cost of the well usless after the first 6 months....except it holds an extra 1 square mile of land for the lessee for the future. Short laterals are coming. The operator needs long laterals to hold territory but they don't have to drill stupid forever. 4500 ft lateral is common in TX, those poor inexperienced texans just aren't smart enough to see the superiority of the 10,000 ft lateral. Texans have only been drilling for over 100 years.

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