How to read the options for a Pooling Order

Oklahoma Corporation Commission Case: CD2023-000254 Order Number: 732683 Order Date: 3/9/2023 Company Name: Camino Natural Resources, LLC Legal Description: Section 34, Township 7 North, Range 7 West, Grady County, Oklahoma

Election Deadline: Wednesday, March 29, 2023 Your election must be postmarked no later than this date unless this day falls on a Saturday, Sunday, or legal holiday or official agency closing, in which case the period is extended to include the next day which is not a Saturday, Sunday, or legal holiday or official agency closing.

This report is to provide a mineral owner with the information needed to determine whether he or she should make an election under a pooling order.  It also provides hypothetical scenarios to compare potential outcomes.  This report does not guarantee any outcomes or revenues.  While a recommendation is provided, it assumes that the owner will opt for the royalty that will provide the greatest return assuming that the proposed development is successful.

Rule Regarding the Election and Time Limits: You must pay careful attention to this because if you do not make a timely election, you will only be entitled to the 1/8th royalty. You will not be able to change this later if the proposed wells described in the order are drilled and produce oil and gas. Not only will you be stuck with this royalty, but those who inherit from you cannot make changes. Therefore, if you want a higher royalty a timely election must be made.

The royalty choices are:

  1. Paragraph 3(b) has a royalty of 1/8th with a $2500 per acre bonus/consideration.
  2. Paragraph 3(c) has a royalty of 3/16th with a $2000 per acre bonus/consideration.
  3. Paragraph 3(d) has a royalty of 1/5th with a $1800 per acre bonus/consideration.
  4. Paragraph 3(e) has a royalty of 22% with a $1700 per acre bonus/consideration.
  5. Paragraph 3(f) has a royalty of 1/4th with a $100 per acre bonus/consideration.

BONUS / CONSIDERATION The order provides for something called a bonus (some orders use the term “consideration”) How does the bonus work? This bonus is simple math. The amount of the bonus is multiplied by the number of net mineral acres you own. For example, if you owned 10 acres and you accepted the lowest royalty, your bonus would be 2,500.00 X 10 = $25,000.00. But if you owned 1.2 acres, your bonus would be 2,500.00 X 1.2 = $3,000.00. The order does not tell you how many acres you own. Therefore, unless you know how many acres you own, you cannot be certain of the amount of your bonus. Generally, you would need a mineral title opinion to determine your acreage.

The bonus is a one-time-only payment.  Most savvy mineral owners are more interested in the highest royalty instead of the highest bonus.  The reason is that in the long run the higher royalty is more profitable in the long run.

If a timely election is not made, then an owner will be stuck with the 1/8th royalty.

This post is not legal, tax or investment advice. Reading or responding to this post does not create an attorney/client relationship.