Hello I was hoping to get to advice for the experts and members here to help navigate my first mineral right lease offer. I have 4.88AC here in creek county 03-16N-10E and I have been contacted by a land man who has signed leases with several of my neighbors. I am new to Oklahoma and not at all familiar with mineral rights so please bear with me.
After receiving a certified letter last week from the land man and not getting back to him he showed up at my door today and went over his offer.
$ 100 acre signing bonus and 18.75% Royalty
or
$ 300 acre signing bonus and 12.5% Royalty
The term is 3 years with a 2yr option. I did a bit of online reserch after I received his letter and I asked if the royalty was pre or post production cost and he said my neighbors lawyer added a no production cost clause to their lease and he would do the same for me. He also claimed that they agreed on 100ac bonus and the 18.75% royalty.
These neighbors (who I bought my 5ac from) have 100+ acres they just leased him
I also thought it was worth mentioning the neighbor to the west of me has an oil business (Cornelius Petroleum) and from the looks of it has some ok production as I seen tankers leaving the property all the time.
- Is this a fair offer?
- Are there wells producing in my area where it would indicate its worth it to get involved and lease my rights? that 488.00 for 3/16th signing bonus seems like peanuts.
- With only 4.88 ac and all these other neighbors having hundreds of acres leased would that mean they would ever actually drill under my small homestead in the 3 years and actually see any royalties?
- When I asked why they want my little old few acres he said something about needing to own over 51% of the section to get operators rights but then I thought he said they already secured over 70%
- Tell me more about pooling? Does it have to do with the above?
Any and all advice is greatly appreciated. I’m a researcher and DIY’er so it my natural instinct to find out everything about a new subject/project so I can make informed decisions and avoid missteps. This industry and all the technical details of the ins and outs are making my head swim but I think I’m in the right place.
Thanks in advance for your time. I really appreciate it.
@CreekCTYHomestead Welcome to the forum
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Fair? who knows… Most of us would prefer the higher royalty as it will pay off more over time (if the well is successful) than the difference in bonus. Bonus amounts are not public, just royalty when the lease is filed.
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There has been quite a bit of drilling in this part of Creek for many years. The reservoir for the new well should guide the answer. Ask the landman what horizon are they intending to drill and what would be the spacing of the well. Cornelius already has ten wells in your section, but not all are still active. None of wells are especially high in volume, so don’t expect too much.
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The depth of the well and the type of well (vertical or horizontal) would determine the drainage of the well and where it would be drilled. Many oil wells have 80 acre spacing and many gas wells have 640 acre spacing, so your acreage is just part of the larger drainage area. They may not drill on your particular acreage.
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They would like to get as much leased as possible before going to pooling. You can also not lease and wait for pooling. I prefer pooling if I cannot get a good lease.
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Forced pooling is used when they cannot find everyone who is a mineral owner or some will not lease.
0_The Pooling Process in Oklahoma.pdf (340.4 KB)
0_Royalty-Owners-Booklet-112020.pdf (6.8 MB)
I would advise you to get an oil and gas attorney to look over the draft lease the landman presents. The draft is rarely in the mineral owner’s favor and needs quite a few edits. It is extremely important to get a no post production lease and the wording needs to be exactly right. Quite often they will label a clause as no post production, but a careful reading shows that they put it right back in. There about ten other clauses that most draft leases do not have that need to be added.
CreekCTYHomestead: Have you progressed with a lease or an attorney? Did Landman mention who they were leasing for or what their target horizon was as per Martha’s post? Also, is the new well going to be a vertical or horizontal? This well type along with the reservoir would provide an indication of what type of well that they expect as horizontals cost quite a bit more than verticals. Have some scattered acreage in the surrounding area so will post if I receive a lease offer.