I am a co-owner of the following mineral rights with my sister, which we inherited in 2006.
Lincoln County, Oklahoma owning mineral rights in Township 12 North, Range 3 East Section 25: SE/4; Section 26: NW/4; Section 26: SE/4 consisting of about 477 acres.
First question . . . what is the difference between a unit and a pool.
The drilling company is Paul Gillham Oil Company, the contract came from Jaketown Resources I, L.P. This is all new to me. We have been presented with several leases over the past few years but have not been interested up until now.
They have offered $200. per acre and 3/16th royalties. Is this a decent proposal for the area? Also, I understand barrels of oil but it seems these are for gas, although they stated both. How do you measure gas?
Shortly after receiving the contract we received a Notice of Hearing letter for Horizontal Drilling and Spacing Units for Section 25, Township 12 North, Range 3 East. We also received a letter (also Notice of Hearing) for relief of Pooling in the same section. Are these just done as a normal course of action or do I need to take some kind of action?
Also, is there any way the company can go to court and take away your legal rights and drill anyway if you don’t sign the lease?
Sorry for the length. Any help will be truly appreciated!
Andrea, Welcome to the forum. You will find many great answers here. If you have been offered $200 per acre and it is your first offer you can be pretty sure that it is low. Especially if drilling is about to happen on your property. You have options and depending on who you talk to, you can get different advice. You can negotiate a lease now and sign for more bonus and a larger percent. You can wait until the pooling takes place. At that point you will be offered different signing options based upon the kind of bonuses that have been offered in the area. Many, myself included, choose to do this especially if your Net Mineral Acres is not very many. You usually end up with a pretty good deal.
I am not aware of any company being able to take away your rights but they certainly don't need your permission to drill. You still get your share of the profits though.
Thanks so much for your reply Kirk. I'm glad to hear that they can't bilk you out of your share of the profits. The first letter I received seemed to say that they could, although, not being "in the know" I probably read it wrong.
Kirk Bloomquist said:
Andrea, Welcome to the forum. You will find many great answers here. If you have been offered $200 per acre and it is your first offer you can be pretty sure that it is low. Especially if drilling is about to happen on your property. You have options and depending on who you talk to, you can get different advice. You can negotiate a lease now and sign for more bonus and a larger percent. You can wait until the pooling takes place. At that point you will be offered different signing options based upon the kind of bonuses that have been offered in the area. Many, myself included, choose to do this especially if your Net Mineral Acres is not very many. You usually end up with a pretty good deal.
I am not aware of any company being able to take away your rights but they certainly don't need your permission to drill. You still get your share of the profits though.
Probably would not hurt. Especially if you want to get a good idea of what your minerals are worth in terms of a good lease. The 477 acres that you posted is probably not your Net Mineral Acres. Many of these tracts have been sliced up many times as they have been past down from generation to generation so you are going to want to know your NMA. Your deed (if you have a copy) might say. I can send you a friend request if you want to talk in a bit more detail.
Thanks Kirk. I did look at the deed and it does state quite a bit less acreage. So, most likely my grandfather or parents sold off parts of it. Why would the drilling company state 477 if the deed states less? Seems odd. Would they not have a copy of the deed?
Andrea, I would like to send you a friend request and get a little more information from you. I may be able to look into your minerals today and give you an idea as to how much leases are going for.
Typically, pooling occurs on a Section basis, where an operator will pool all mineral acres 160, 320, or 640. The deeper the well, the more acres get pooled...Woodford wells are usually 640 poolings. Your initial offer seems competitive for the area, however you need to consider a few things. Do you want more royalty, so your royalty checks will be larger once the well produces, or do you want more upfront money? Sounds to me, since they have pooled your mineral section and noticed you on the pooling, they are going to drill the well, so holding out for a higher royalty might be the better move...you need to sign a lease before the final pooling order is filed or you will get force pooled. If you are force pooled, you are subject to a "basic" lease form, without any beneficial no deduct or pugh clauses that may help you on the back end. Gas is measured at MCF's or million cubic feet and the market price for MCF's is around $5/mcf, depending on your transporter and marketing contract
James, thanks so much for your response to my questions. All good things to know. So, which is more lucrative, gas or oil? I guess if they are drilling for gas I can't call myself an oil baroness. Rats! I liked the sound of that. LOL!
Andrea, it is not uncommon to drill for both. It really depends on the geology of the area. In Kansas where I am from, the economics (price and profit) has often dictated whether oil, or gas, or both, has been produced. We've seen decades of nothing but gas drilling, and decades of nothing but oil drilling. What is interesting about Kansas (and many other areas) is that often times you can produce oil and gas from the same well. What gets expensive is getting the gas to market (pipelines). Sometimes gas doesn't produce in quantities (or in quantities for a long enough time) to pay for the pipelines and still be economical, so the gas gets flared (burned) off or vented off near the well. In other decades gas was too cheap, so the drillers did not complete there wells into gas-only formations, and instead just targeted the oil rich formations. And with that being said, this is where depth clauses and leasing on certain formations / strata can be valuable down the road when the economics change and now something that wasn't worth much money today is worth a tremendous amount.
I wouldn't necessarily say that. Here's the way I look at it: Signing bonus is almost irrelevant if the terms of your lease do not benefit you in the long run. Think of a lease as a marriage that you cannot divorce from. Once there is production in economic quantities, you are more than likely stuck with the terms you have agreed to in the lease. I would rather give up my bonus in exchange for a very powerful lease that favors me, the mineral owner. In practice though, there will likely be concessions from both the owner and the operator, and bonus money will still apply.
So getting $3,000 an acre with a 20% royalty but no vertical or horizontal Pugh clauses, lessor pays post-production costs, $1/acre shut-in clause - if ever produced, may pay out far less than:
$2,000 an acre with 25% royalty, vertical and horizontal Pugh clauses, NO post-production costs, $1,000 per well per year shut-in clause.