Chisholm in Kingfisher

#1

We received a Certified letter from Chisholm today regarding a Well Proposal in Kingfisher County.

They say they intend to drill, list the cost and state their records indicate we may claim to own an interest and that will be determined by title examination.

They offer 4 options:

1 Participate with your interest in the drilling of proposed test well. 2, 3, & 4 options say we will leave or assign our interest to Chisholm and each offers a cash amount reserving a 1/8, 3/16th or 1/5 royalty and a % net revenue interest.

They go on to say they will file a pooling application listing as respondents all who have not reached an agreement with them.

They say if we choose to lease/assign our interest they will send more paperwork and dismiss us as a respondent to pooling.

Then they say if we elect to participate our interest is subject to pooling order for us to be considered and to respond in a timely manner and prepay our proportionate share of the completed well costs. Does that mean they want us to pay our share of 4.5 million?!

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#2

Sheree: They are going to drill a well. They are giving you the option to lease for one of their options or to participate in the well by paying your proportionate share of the total well costs.

You also have the option to lease your minerals to anyone else you can make a deal with.

If you have 1.00 acre, your costs to participate in the well with 100% of your interest in a single 640 acre unit, your payment would be calculated as follows:

1/640= 0.0015625 X $4,500,000.00= $7,031.25.

What is your legal description and how many acres do you own?

Todd M. Baker

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#3

Thank you, Todd. Section 04-19N-09W. This is a new one to us. We leased to Newfield 3 years ago for 32 20N 9W in Kingfisher and Major for which there was a permit notice last month. I also recently found our name on another section at OKCR dot com which I believe was for 20 20N 9W. Our ownership is minimal, something like .05%, but it could add up.

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#4

Word of caution on participating. It is not a simple one time check. You need to agree to pay your share over the lifetime of the well, get drilling insurance and be ready to pay for any additional wells in the section after this first one. You need deep pockets, a really good oil & gas attorney, a good oil & gas accountant and a thorough understanding of the pros and cons of being a working owner. Not for the uninformed.

You can either lease with Chisholm (be sure and negotiate out the negative clauses for the mineral owner and get the good ones) or you can lease with someone else. Or you can sit back and wait for the pooling and select one of the options. I usually take the highest royalty and the lowest bonus in horizontal well territory because you only get the bonus once and it is usually piddly compared to the long term payout on a horizontal well and perhaps additional wells.

You actually do not have to sign that letter. Just put it in your files.

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#5

Don’t sign? If I don’t will I get added to pooling?

We are inclined to lease the ‘2k per net mineral acre @ the 1/5 royalty and delivering an 80% net revenue interest.’

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#6

You don’t have to sign and you will be added to the pooling or you can sign and they will send you a lease. Then you can negotiate the clauses. I just dealt with them and they were quite nice.

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#7

Thank You M Barnes. This can be so confusing at times.

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#8

what is Chisholm doing in kingfisher county

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#9

I wonder what is negotiable? They offer up to 1/5 royalty (with $500 less per net mineral acre) which is more than I’ve been offered before.

Any suggestions?

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#10

Almost all of the lease clauses are negotiable and you had been be wise about them. Do not sign the lease they send you without understanding the consequences of each clause. No post production charges at all, no enhanced. Several more are needed to protect yourself. (Not giving legal advice…)

Chisholm and several other companies are quite active. Prices can be negotiable depending upon your section, township and range.

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