2003 McClain Forced Pool Lease

[M_Barnes]

Welcome to the oil and gas business. The Mineral Help tab above is a good place to start your learning curve.

The earth is made of various layers of rock called horizons. Various horizons are more prone to have oil and gas in the pores between the mineral grains. Here is a picture of the major reservoirs in OK.

The western side of McClain has fairly good reservoirs, the eastern side is thinner and not as good. Hence different folks will have different experiences. A poor well on the east side of McClain does not condemn the whole county.

I was trying to determine if you were already getting paid (or should be getting paid) on horizontal wells that area already drilled in 4-7N-4W. There are three in the Woodford shale. Usually, if there is already production in a section, it is very uncommon to get a new lease unless the former lease or force pooling did not include the zone of interest for the new lease. No leases have been filed in that section since 2023 and the highest royalty offered was 1/5th back then. The Black Hawk wells were drilled in 2023.

To the issue at hand, when did you inherit? Was the ancestor already getting paid on these wells? If so, then you need to contact Validus and get into pay status with them and find out if you are already held by a lease or a force pooling. If held by a lease, then need to know if it had a depth clause. You might be open to lease for deeper zones, but the Woodford is held by production. If held by a pooling, then you may be able to lease for shallower zones.

In general, many of us would pick the highest royalty offered and that comes with a lower bonus which is fine. Royalties over many years at a higher royalty far outweigh a one time bonus for a lower royalty. Good for you for getting an oil and gas attorney to negotiate for better terms. If I can get a good, fair lease with an operator then I will be glad to sign. If an operator is difficult, then I am happy to go to force pooling in Oklahoma as it has its own advantages.

[sonjatanguay]

Inherited in 2023. Relative was not being paid and I am not currently being paid. Attorney negotiating this current lease said my mineral rights were pooled but this lease was not part of the previous pooling orders. How do I find out if I should be being paid on previous pooling orders? Should I take offer 1/4 with $1,400 sign bonus per acre or 1/5 with $2K sign bonus?

[M_Barnes]

OK, that helps. If it were me, I would take the 1/4 lease if you can get one without post production charges. If they won’t budge on the post production charges then wait for force pooling and pick the highest royalty.

The attorney should be able to help you find out if your relative was pooled before. If they did not answer the pooling, then they probably only have a 1/8th royalty. You can contact Validus and ask their division order department if they are holding funds in the relative’s name.

[Rockhound2]

Get it upfront. All of it. If it does accidentally produce there’s your gravy. Let them gamble. Not u

[Rockhound2]

All that means is Eastern mcclain county is vertical hole country. Save the giants fracs for actual oil saturated zones. A dry hole is the worst thing ever. Ruins mineral values. Wasted resources. Ripple effect. Let’s avoid the drilling for experiments part. No incentive to drill junk

[John_Keys]

Regarding your advice to get good post-production language inserted in a lease, is the following “no-deduct” language (which is ai-generated) feasible, or is it too strong for any operator to accept?

"Notwithstanding anything herein to the contrary, all royalties payable under this Lease shall be calculated and paid based upon the highest gross proceeds received by Lessee or any affiliate of Lessee from any arm’s-length sale of production attributable to the leased premises, without deduction, directly or indirectly, for any costs or expenses of drilling, testing, completing, producing, gathering, separating, treating, dehydrating, compressing, processing, transporting, storing, marketing, fuel usage, line loss, shrinkage, blending, manufacturing, fractionating, or otherwise making the oil, gas, casinghead gas, natural gas liquids, or other hydrocarbons ready for sale or use.

No royalty shall be reduced by reason of any sale, transfer, assignment, exchange, or other disposition of production or related products between Lessee and any affiliated entity, commonly controlled entity, subsidiary, parent company, or other non-arm’s-length purchaser or intermediary. Any such non-arm’s-length transaction shall be disregarded for royalty valuation purposes.

Royalty shall instead be based upon the highest price paid or proceeds received in any subsequent arm’s-length sale to an unrelated third party purchaser in the same or nearest available market.

Lessee shall bear all post-production costs and expenses and shall not directly or indirectly charge, allocate, net against, recoup, retain in kind, or otherwise recover any such costs from Lessor’s royalty interest by deduction, net-back calculation, surcharge, percentage reduction, retained volume, fuel retainage, line loss adjustment, shrinkage allowance, or otherwise.

All royalty payments shall be accompanied by sufficient detail to permit verification of volumes sold, pricing received, purchasers, transportation arrangements, processing arrangements, and all affiliates participating in any transaction involving production from the leased premises. Lessor shall have the right to audit Lessee’s books and records relating to royalty calculations upon reasonable notice."

As always, thanks for your sage advice.

[M_Barnes]

I am not an attorney, so one of our forum experts would have to comment. An operator would probably push back because it is strong, but a third party working owner might be fine with it.

[Rockhound2]

They can’t agree to anything other than thier written term. Move one decimal. Change one word it jams the system. The lease agreement is designed to help make sure u don’t make any money

[John_Keys]

Actually, I’ve successfully negotiated with both operators and land companies on many topics. I asked my question about “no deduct” language because the wording is so aggressive.

[Rockhound2]

Don’t forget lessee must purchase and maintain adequate insurance at all times for the duration of lease and lessor must be listed as additional insured and indemnified against any and all perils and hazards including pollution. Forever. Ready to sign?

[Rockhound2]

You would not believe the pollution from fracking