Myself and other home owners on small lots of land in our small town here in southeast Kansas (Fredonia) have received offers from a company to purchase our mineral rights for horizontal drilling at 4 cents a square foot. I believe they are after oil since the letter says they are restoring the "historic oil fields" or something like that in this area. It also states they will be doing horizontal drilling. I want to know if refusing to sell will get me offers for a lease and royalty payments or if it will just mean that the oil down there will be drained and my profit lost since other land owners around are selling their rights? There is only one company involved as far as I know and they've already begun work outside of town from where they will do their drilling. Thanks for any help you can give. -Les
Hi, Leslie -
I imagine you will receive an offer to lease after they have purchased all the mineral rights in the area they can.
It would be VERY illegal for them to drain your land and not pay you.
You will be offered a Signing "Bonus" payment for a lease of a certain number of years (or until production ceases). The important part is that the lease will provide for you to retain a Royalty on the production. Do not settle for less than 1/4 or 25%.
If they believe in the area enough to be buying all the minerals they can, then I would advise you to not sell yours. And, from what you said about their "restoring historic oil fields", it sounds like they may be planning a secondary recovery project, such as a waterflood or CO2 injection project - those can be quite profitable for a very long time.
Hope this helps -
Charles
Charles Emery Tooke III
Certified Professional Landman
Fort Worth, Texas
Charles, thank you very much for your help and advice. It is refreshing to find people willing to give their time to giving advice like this. Thanks again.
You're welcome! It is a pleasure to help out on The Forum.
I just heard about drilling for oil in Fredonia the other day. Haven't found much information online. Leslie, is there any summary of what is going on there that you could provide? We have some methane gas wells in Wilson County but I was surprised to hear about "urban drilling" about to take place there for oil.
Hey Guys -
If you will accept my invitation to be "A Friend" on The Forum and via that, allow me your personal emails, I have some data on the Fredonia Field (Cherokee Formation?) and an idea or two as to what I think might be happening in the area to share with you.
Good things, although perhaps only for Mineral Owners in what might be a relatively small area of Mother Earth.
Charles
Charles you have been befriended by me. Thanks for any info.
Kitchen, the official info I have is an offer from Wilson County Holdings (LLC (WCH), a subsidiary of Stranded Oil Resources Corporation based in Austin Texas to buy my mineral rights. I have friends who have received similar offers as has the church I work for. They want to buy our rights at 4 cents a square foot here in Fredonia, KS.
The letter says they are "engaged in revitalizing the historic Fredonia oil field. To carry out this planned project successfully, we are buying mineral rights within the City of Fredonia to help assemble a production unit for field redevelopment. This will not involve drilling on your property or elsewhere within the city limits of Fredonia." The letter asks that we set up an appointment, sign an affidavit that you are the owner of the property, and bring the enclosed mineral deed to the appointment. Upon signing of the documents you are to receive a bank draft you can present to your bank along with the mineral deed for payment.
A business owner I know just outside of town has watched buildings and stuff go up across the road from him and has had official meetings with the city about what is going on. They plan to drill a 16 ft wide hole down 1200 feet and then go horizontal under the town and do "fracking". The main part of the work is supposed to take about 18 months and then a ten man crew will be left to continue the operation until it is no longer lucrative. Friends nearby the drill site that is just north of town have received letters asking for the company to come onto their property and take pictures because they will be doing blasting nearby . . . I guess that's so they know what damage is caused if someone claims damage occurs to their property. City officials are in favor of the work because of the jobs and money it will bring to town.
I know there's controversy out there about fracking, but not knowing much about that and not feeling I'm in any position to stop it, I just want to get the best deal I can out of it within reasonable effort. I'm not in for any lawsuits or anything. If I find that by not selling that they'll likely get what they want without my cooperation and without paying me anything then I'd just assume sell.
A good amount of oil was taken around here in the past with traditional drilling methods and wells. Those wells are no longer producing very much, but apparently the fracking method has been successful at getting a good amount more of oil out of places like this; and i don't think there were ever any traditional wells right in town. That's about all the pertinent info I know.
Les
Charles Emery Tooke III said:
Hey Guys -
If you will accept my invitation to be "A Friend" on The Forum and via that, allow me your personal emails, I have some data on the Fredonia Field (Cherokee Formation?) and an idea or two as to what I think might be happening in the area to share with you.
Good things, although perhaps only for Mineral Owners in what might be a relatively small area of Mother Earth.
Charles
Leslie,
Thank you for the update. It sounds to me like plenty of people there will begin to benefit from what we have here in Texas known as pooling interests, and urban drilling. I grew up in Chanute and have some general knowledge of the area, so I was surprised when I heard they were going to try for urban drilling in Fredonia. Kansas has so much rural land available in comparison to our sprawling cities in Texas, that there must be some lucrative deposits of oil under Fredonia to consider drilling for it in town. I am no expert but I would not sell my mineral rights unless you are in dire straits for cash. There is an amazing amount of resources here on this forum to guide you through leasing and how to achieve a good and fair royalty rate for your minerals. I inherited the lease of my property here in Texas, where the previous owner was approached at her home and signed the first lease presented to her. If she would have educated herself or even waited for the next offer to come by the neighborhood it would have been a much better lease and money in the long run. Knowledge is truly power. I am excited to hear about the progress of production there in Wilson County. There are currently no Wilson or Neosho County groups on here, maybe we can get enough interest to start a new group!
Kitchen
Leslie -
Now that we are "Friends", I need you to go to that part of The Forum and send me your email so I can send you what I found on the Fredonia area.
Are you certain the guy said a 16 foot hole? Maybe he meant a 16 inch hole, which you could then turn and run horizontally under the town for fracking. Maybe multiple laterals.
A 16 foot hole 12 stories deep just doesn't sound feasible. Or safe.
Charles
My wife and I both heard it from the business owner who had dealings with the city and someone from the company. He could have misunderstand but he was describing the whole process to me and said that multiple men would be going down this whole on a platform. He also said at least something about this is brand new; but I'm not sure what aspect of it he was referring to.
If Charles or anyone is still paying attention to this thread I thought I'd give an update and see if you had any more advice. I have held on to my mineral rights thus far, while many others in our small town have decided to sell theirs. Stranded oil is planning to go ahead with horizontal drilling and the fracking process under our town. They say they have sold enough mineral rights to be able to "unitize". As I understand it that means they have sold or leased the mineral rights of 60% of the town's property owners (or that may be a per sq foot amount-- not sure) and they can legally pool others in and do the work without making more sales.
They say they currently will only consider leasing to those who have over two acres. They have given a 6 cents a square foot selling offer to churches and perhaps some others. They maintain their 4 cents a square foot offer to individuals (some offers are yet to be sent out). They say that way down the line they will be required to give 3/16th royalties to property owners who are close enough to the fracking areas they choose and who do not sell their rights.
That leaves me with this one question that I know can't be answered with certainty because no one knows whether the process is going to be very lucrative, slightly lucrative, or not at all. But maybe you can answer this: If the drilling proves moderately lucrative and there are say 30% of the property owners like myself who do not sell, would it be likely that we would end up with more funds in the long run than if we sell at 4 cents a square foot? There are approximately 2500 people in our town plus businesses. In my scenario there would be 750 people to pay royalties to. Thanks for any more advice you can give.
PS I tried to contact the Kansas Commission in charge of granting drilling rights but they say they won't answer my questions and that I would have to get an attorney.
Wow if I could buy mineral rights that cheap I would be a millionaire by the time I am thirty. I’m also curious what the forced pooling royalty rate is in Kansas.
Hi, Leslie -
When you lease for 3/16ths, you bear none of the costs of drilling or operating the well(s), which can be substantial, but you only receive 3/16ths of the income attributable to your lands as they relate to the overall unit. You would begin receiving monthly royalty payments within a few months following the commencement of production.
If you remain unleased and are Force Pooled with other lands, it is true that you would receive 100% of the income attributable to your lands, but only after the company recovers all of it's expenses for drilling and operating the well(s) PLUS, possibly a 200% - 300% penalty (depending upon the State's laws). It might be years and years before you see a dime, and you might be required to carry a substantial amount of liability insurance in the meantime.
It would probably be best to accept the 3/16th lease and let them move forward with their plans.
Hope this helps -
Charles
Call a Kansas Landman.
Thank you guys for weighing in again. I'm confused by the comment that in a forced pool I could receive 100% of proceeds but may need to carry liability insurance. I'm also confused about forced pool royalty rates. I guess I need some more knowledge.
I assumed that unitizing and forced pooling are the same. Is that indeed the case? If so then is that not the equivalent of a forced lease? I also assumed that 3/16th was the forced royalty rate. Thanks for helping me out with a little more education. The company has not offered a lease to me and I didn't hear the word lease when they said that later they would unitize and pay 3/16th. Is that likely a reference to a future lease offer or a forced pool royalty rate? What's the diff? Thanks again.
Forced Pooling brings unleased interests into the Unit.
But what you just wrote about "they would unitize and pay 3/16th" has me confused. Perhaps you should call the Landman and ask him to clarify what their offer is.
I just got off from the phone with the man overseeing the mineral rights offers in Fredonia. Here's what I'm understanding now. They do not consider it feasible or worth the risk to offer leases to any property owners who own less than 2 acres, so their response to small property owners who will not sell will be one of three things: 1. not drill anywhere near their property and hence drop the Fredonia project (unlikely with 60% having already sold) 2. Solicit the KCC for a "setback" allowance to drill between 0 and 165 feet from the properties of land owners who will not sell (KCC would not accept 0 but could accept another # and allow the project to go forward near my property and that of others without paying any royalties). 3. Solicit the KCC to include the property of land owners in the unit (the same as a forced pool) and then pay royalties to the tune of 3/16th when production begins and then 100% after they have recovered their investment costs (the cost is in proportion to the amount of land owned). This is the forced pooling option and 3/16th is what the law requires them to pay when production starts.
I also found out that the .04 a square foot is based on the PV10 standard . . . the bottom line I understood is that 4 cents a square foot is the equivalent of receiving 3/16th of the expected production for 10 years and so if it's a good well that produces for 20 years they would come out quite well but only break even if it is a well that produces for 10 years. That means my decision is between hoping to be included in a forced pool on a lucrative well that will net me a substantial amount in years to come versus selling at 4 cents a square foot to get a less substantial but relatively fair amount now.
Since the company has obviously seen reason to invest in this area and since I live in the middle of town, it seems reasonable to me to assume the well will be lucrative and that they will need my property. For that reason my tentative decision on the matter is to hold on to my mineral rights. Does that sound reasonable to those of your reading this?
Yup. You've made a good, sound evaluation of the circumstances.
It was quite nice of the gentleman to go over the options with you in such detail. He must be a LANDMAN!
Although offering to buy your minerals for the equivalent of 20 years of production at 3/16th royalty for a well that they hope will produce for 10 years is a little peculiar.
One thing: You may need to contact the KCC and ask them about how Notice of Hearings regarding Setbacks is done. Is it going to be announced in the Newspaper, do they have to mail all the potentially effected parties notice or is it just stuck on a bulliten (sp?) board somewhere in the KCC Office?
The reason being, if they try to go with #2, you may need to attend the meeting and be signed up to protest that option.
Thanks again Charles. I corrected the 20 year / 10 year typo. I had it reversed. I will check into the rules concerning Setbacks. Have a blessed day!
You too.