Explain Pooling to me please

#1

We were notified we have mineral rights to a section that has two producing wells. Apparently it has been pooled with another section.

Our unleased portion is being approached to lease by PRI (Delaware Basin LLC)

My question is how does pooling affect us? The good? The bad? Does this change anything? How does this work when it comes the operator offering us a lease amount? Tips? Thanks!

#2

If you have leasing rights, then pooling means that your interest in production will be reduced by multiplying it by a fraction the numerator of which is the gross acres covered by your lease - the denominator is total acres in the pool. If you own 1/4 leasing rights in 100 acres which is pooled with another lease in a different tract of land of 100 acres in which you own no mineral rights your 1/4 would be multiplied by 100/200, so that you would received 1/2 of 1/4 or 1/8 of total production, rather than 1/4 of production if your 100 acres had not been pooled.

#3

LDetter, The first thing that hit my radar is the fact that there are two producing wells that are producing from your mineral rights ALREADY!!! If you are just now receiving notice of this . . . . GIT A LAWYER!! This is huge . . . . . companies can not operate like this!

My best regards,

Stephen Watkins (601) 347-8153

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#4

If LDetter only owns a fractional interest in the minerals the acreage and the other mineral owners in the same tract are under lease, then the oil company as lessee has the right to drill and operate wells. For example, if LDetter owns 1/10 minerals and the other 9/10 are under lease, then the oil company may drill and carry LDetter as an uneased mineral owner in the tract. In that situation, LDetter will come into the well once it reaches payout (100% of drilling costs and operating costs are covered by the revenues to date). Oil companies generally do this when the unleased percentage is small. Some mineral owners prefer to be carried as unleased mineral owners rather than to lease.

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#5

With regards to your answer for L/Detter as pertaining to being carried as an unleased mineral owner. When you refer to ( 100 % of drilling costs and production cost are covered by revenues to date, are you saying that as an owner of unleased mineral rights that my pay out %, will not have deductions of production, drilling or any other related cost to producing (which would probably give me a better payout) rather than those deductions which are normally deducted from any royalties i would receive if I were to have leased my mineral rights under a traditional lease agreement of 3yrs?

#6

Jet, If you sign a lease agreement that signals any description of drilling/production costs as deductible items from your lease, you should NEVER sign such an agreement! Your bonus and royalty should NEVER be impaired from these costs! Saying that, however, I have run into surreptious costs being impairing royalty costs just recently on a lease that has been developed into the primary formations on their monthly royalty statements recently. That is one thing you need to check every month once you are receiving royalties - you will get a monthly statement once you start receiving royalties AND**you need to make sure in your “Lease Agreement” that they have not included an item or two about you sharing in the production and transportation (pipelines) from your royalty!! Be sure you read your lease agreement very carefully and probably paying an Oil/Gas Lawyer to review the agreement Before you sign it!!!

#7

In fact I spoke to the individual that is offering to lease my mineral rights today, and brought up those very things. Of course he told me no changes could be made to the mineral lease in that way; the same was said when I mentioned the Shut In well stipulations of 90 consecutive days not working for me, I would want that time to be cummulative days, over a period of 1 year ( thinking maybe he would counter and offer it on a 2 yr) but he again said it just wasnt possible that the owner wouldnt agree to red line or change anything. I mentioned about carrying me as an unleased mineral owner and that it may be the best thing for me to do. He told me about a past case scenario where everyone had signed, except for a few, and they were force pooled, which in turn only yeilded them 3/16% from RRC. If I didnt sign my lease, the owner has already had to expand in another area and the owner would do that with my property if he needed to. Well I understand everything he has said and I know that if someone wants something bad enough they will make a few exceptions. So I am putting him off, to give him time to think about what he can get done to close this deal, and so I can look a little more, make more side notes as to what I would accept. Then he will have to decide what to do for me. As you suggested I will seek advice from an Oil and Gas Attorney before I sign anything, if I sign at all. Thank you very much for your suggestions, advice and sharing your expeirence.

#8

Jet,

You are "Spot On" . . . . . . don't let them "bluff" you but I suggest you investigate "Forced Pooling" to educate yourself on what you are actually looking at.