Forced, Statutory or Compulsory Pooling
I have been offered a lease. Most everything I have found to read relates to signing a lease with an oil company that is looking to test/explore for oil/gas.
The lease offered is for a unit that contains two wells that were drilled in 2018’ and 2020’ and shut in. There is a gathering pipeline 1/2 mile from the well heads that ran to a well down stream from 99’ to 03’.
I assume the reason I received a lease offer is because the intent is to connect these wells to the gathering pipeline and start production - the lease offer is for 1 year.
One well appears to be vertical and one well is horizontal - bore casing across my property (drill site?). I assume the cost of the vertical well was rather low, and also assume the costs to connect to the nearby gathering (transmission) line would be on the low side knowing that it was in service recently and the only well it serviced has been decommissioned.
Looking at the odds of risk vs reward; I would think that volunteer pooling would be a good option but I can’t find much information about it. Is there anyone that can help me understand the process and potential downfall of not signing a lease for a percentage of a percentage?
I will say that one big down fall is that I found the production data for the well that was just down stream (2 miles) on the gathering line mentioned before. I will post the numbers in a table below. Are these numbers super low? I read that average low producing wells make 1-2 MMCF per day; this well made under 11 MMCF in the first month and only 22 MMCF total. If the numbers are right; why would anyone even look at drilling more wells nearby? The area I am talking about is not known for being a very successful; there are dry holes everywhere though.
Any help would be greatly appreciated.
These are the production numbers for the well nearby
Date GW Gas (MCF) Condensate (BBL)
Jan-99 10,936|10,936 35|0
Feb-99 1,203|1,203 5|0
Mar-99 453|453 1|0
Apr-99 269|269 1|0
May-99 121|121 1|0
Jun-99 91|91 1|0
Jul-99 6,498|6,498 30|0
Aug-99 642|642 3|0
Sep-99 257|257 0|0
Oct-99 133|133 0|0
Nov-99 24|24 0|65
Dec-99 1|1 0|0
Jan-00 1|1 0|0
Mar-04 0|0 0|12
Apr-04| NO RPT NO RPT
Total 22,043|22,043 77|77
Please add your state and county as the answer may vary by state.
Anyone have an opinion?
Right now the options are
- An offer for 20% royalties of the just under 4.5% of the unit (asked for 22.5% and nearly instantly told no)
- Holding on to the 4.5% and riding it out
- Selling the rights to someone that is willing to buy them
Definitely not looking for someone to say you should do one or the other. Just wandering what the normal is since I am not familiar and my situation is a little different than the normal.
- The offer from the Landman seems low
- Seems that there isn’t much information on folks keeping their full percentage and holding out for a good producing well; so my guess is most folks sign the deals they get from the Landman or sell the rights all together.
- I have read several post about high offers to buy rights, some in the last week. I feel I have been offered a fair amount compared to the Landman lease offer.
Again, there are 2 wells that have been drilled already. They are looking to put them into production this year. The gathering line is less than .5 mile away. I have been asked to hurry up and sign a lease so they can get to work. The Landman has also stated that if I don’t sign quickly that they would cut me out of the tract (the horizontal bore crosses the property I own the rights too). When asked to up the royalty from 20% to 22.5% the Landman stated that was a no-go and wouldn’t be taking the offer to the approving party.
I am at the point where if they don’t offer the extra 2.5% royalty I asked for of my small portion (Under 4.5%) that I will probably hold out and hope the well produces, or sell the rights and they can start negotiations all over again with someone that knows what they are doing.
Am I out of line?
I feel this would be a different story if this was a company that was looking at exploring the area. They might be looking to sign with someone else if they cannot come to an agreement with me. Then they could just drill across the street. In this situation the wells are drilled and they want to connect them to the gathering line.
I haven’t been on this forum in a while. If you would be producing wellbore tract, that’s the Producing wellbore crosses your land, not just pipe leading to the producing wellbore? I would say they can’t cut you out and the landman is being dishonest. I am not the best to advise you on Texas mineral rights but I believe what I stated to be correct. I’m surprised that you haven’t received any advise at all.
Assuming you are producing wellbore tract. I think there is a good possibility you are in practice an owner of your percentage of that horizontal well. I don’t know how much trouble your interest would be worth, but I do know there is Never a good day to not verify what a landman is saying. I would do some research on what it means to be wellbore tract and consult a lawyer you trust. If you own 4.5% and you aren’t required to pay the bills to run the well, I’d take it and not the 20% that a lease would pay me. The lie is the biggest money making tool in the oil business and it’s why I deal with oil companies in writing, everyone should.
You never know. This could be all about that gathering line and keeping it in use so it doesn’t have to come out according to someone’s ROW agreement. Your prospective operator buys it for a song from someone who doesn’t want to pay to rip it out and even though they aren’t making a lot of money from the well/s there could be more wells in the future, especially at today’s prices and he already has a gathering line he can charge others to use. Or they have some other reason but they do have a reason. I personally wouldn’t execute the lease and I would try to talk to the landman’s boss or principle/employer, it might be the only satisfaction you get out of the entire deal.
The normal is to sign the lease. You would basically be doing what most everyone else does if you negotiate a little bit (sounds like you did) and then sign. That doesn’t mean that is always optimal.
IMO, the main reason not to sign a lease is because you are in an area where the wells are great. So the well pays out within say a year of coming online and, although you forego the very peak production, you are getting 4-5x the revenue at month 12 that would be getting otherwise. You very quickly come out ahead on any NPV metric (even with bonus factored in).
But if the wells are less great, then payout is much later and a mucher higher % of the well revenue is before payout where you get zero…and your revenue is way down the line and worth less and less on NPV basis.
And if the wells are no good at all, or don’t get drilled/produced, well then you obviously get nothing if you don’t lease.
So you kind of need to know what the risked odds are that this well is going to payout, and how fast. Sounds like you dug around a little bit and didn’t find much to suggest these wells are going to be great.
I don’t know anything about O&G in Brazoria County other than what I can easily see online. Which is a whole lot of not much going on. Bunch of old Frio verticals. Relative to what I’m used to looking at, I would guess that the odds that a well in Brazoria is going to be great is pretty low.
So, on that basis I’d sign a lease. Shrug. That’s 5 mins of looking talking so grain of salt. You never mentioned the bonus amount.
This topic was automatically closed after 90 days. New replies are no longer allowed.