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General Information |
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UNDERSTANDING MINERAL LEASING
Raptor Resources leases most of their mineral rights while purchasing a minimal amount. These leases are generated a majority of the time with the Mineral Owner but can also be done through a reassignment of an oil and gas lease with the current Lessee. If you are a Mineral Owner, understanding your rights is the first step. A suggested article to review to begin your journey can be found here. Mineral and royalty interests are similar in that both involve ownership of minerals under the ground and they receive a portion of the income from the production of oil and gas. They differ in that the owner of a mineral interest also has the right to execute leases and collect bonus payments. Both mineral and royalty owners receive income once the well is producing, but only the mineral owner receives the up-front bonus payment. Like mineral and royalty owners, the owner of overriding royalty interests receives a portion of the income from the production of oil and gas. The main difference is that the owner of an overriding royalty does not own the minerals under the ground, only proceeds from the production of minerals. Once the lease has expired and production has ceased, the overriding royalty interest expires. Conversely, the owners of minerals and royalties maintain their ownership after production ceases. Either party can initiate the discussion on leasing minerals. After the initial discussion is conducted, the terms of the lease are negotiated. Typical terms to negotiate include royalty rate, lease bonus, and expiration. Once both parties agree on terms of the lease, a lease document will be provided by Raptor Resources to the Mineral Owner. If a Mineral Owner prefers to provide their own lease, they are welcome to do so. Prior to executing the lease agreement, title work is completed to confirm ownership and clean title. Upon receipt of verified title, any bonus payments are made and the lease document is fully executed and recorded with the corresponding county. In North Dakota, these recorded documents can be found on the North Dakota Recorders Information Network. As a Working Interest Partner, once the document is recorded with clean and verified title, our rights are statutorily protected to allow us to participate on wells located within the drilling spacing unit that the lease exists. Once an Operating Oil Company (Operator) obtains majority control of minerals in a defined spacing unit, the Operator may pursue "force pooling" or "Recovery of a Risk Penalty" as defined by the State of North Dakota Industrial Commission (NDIC). The NDIC has the authority to approve such an action under state statute 43-02-03-16.6. Obtaining NDIC approval requires the operator to provide a written invitation to participate in the risk and cost of a well. If the party receiving the invitation to participate is not subject to a lease or other contract for development (mineral interest), the operator seeking such recovery action must make a good-faith attempt to lease said party. The risk penalty for this interest owner is 50% of their share of the costs of drilling and completing a well, while an owner with an interest derived by lease or contract realizes a 200% penalty. The written invitation to participate must include the well site location, depth and objective zone, along with estimated cost, projected commencement date, date the invitation must be accepted and a notice to the invited party about the plan to impose the risk penalty, commonly referred to an Authority of Expenditure (AFE). The invited party may convey its opposition to the proposed risk notice directly to the operator, or pursue its opposition with the NDIC through hearing. An election to participate, by the invited party, must be returned in writing to the operator, and is binding provided the well operations are commenced within ninety (90) days after the date the operator advises it must be accepted. Once drilling commences the participating party will begin receiving invoices via joint interest billing statements (JIBS) that breakdown our participation share. As a participating party, we then submit payment to the Operator in a timely manner. Once production is realized, production revenue is sent to the participating party and if the Mineral Owner leased their minerals they will then begin receiving royalty payments on their proportionate share. |
