Dealing with "held by production"

Oklahoma Mineral Rights Caddo County, OK
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Hello, My family owns 11 acres (6.67 acres Caddo 01-8N-9W - SE and SW corner, 4.5 acres Caddo 02-8N-9W - south half of NE corner). Two other family members each also have 11 Caddo acres (same areas). We received pre-pooling offers from Continental in December. We attempted to negotiate. Since then, Continental’s landman said that a “held-by-production” of a 1974 lease (Producers 8 8/8th royalty lease) precludes them from a new lease. The pooling court date was last week.

I read there is possibility of a ratification and amendment to a lease to bring the terms and clauses up to date; i.e., evaluating the validity of the 1974 lease was a viable option. I contacted an OK attorney who said they “do not see a route to an argument that the minerals are not held by production given you are continuing to receive payment although in very small amounts.” We received $48 last year.

Is this it? We are stuck with the 1974 lease? Also, any updates in this area would be helpful. Thanks!

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The attorney you talked to told it straight. As long as the well is not shut in or plugged, is making enough to pay for production costs and you are receiving a check - even just once a year, the lease remains active and in effect. Continental would not want to amend the lease as it would not make good business sense from their perspective; 1/8 royalty was the common back when your lease was signed, and upping the royalty amount (which I assume you’re hoping for) would mean less profits for them.

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Many of us are held by old 1/8th leases. As long as there is paying production, it can be difficult and quite expensive to break the lease. In some rare cases, the old gross proceeds 1/8th leases can be better than a new higher royalty lease which has post production charges in it (which in OK, you should try to negotiate out).