My siblings and I own three acres of mineral rights in Pittsburgh County, OK 28-07N-13E and have been offered a lease that includes a $500 bonus and1/8 of gross proceeds. However, it requires us to pay post production costs and continue the lease for an additional two years under the same terms as the primary lease. They are unwilling to negotiate. Would forced pooling be a better option. Is there a term limit in forced pooling? Thank you for your help.
This is always hard to say. However, the 1/8th royalty is really poor. Usually in a forced pooling there are 2-3 royalty options. In my view the bonus is nice but remember the lease can last for decades and generations. Based upon what you said I would be tempted to hold out for FP. With that in mind, I have declined leases in the past and would have been better off accepting because the company never drilled and the lease expired.
The forced pooling will have a shorter time period than a lease. Usually 180 or 365 days. However, this past year (2020), some poolings have been extended to last another year due to the COVID decrease in demand and squeezed finances.
Sanguine has a pending pooling but the hearing is not until June 1, 2021 (if then). They intend to drill two horizontal wells in 21 & 28. If I were you, I would try to get a no post production costs lease with some pretty tight other clauses. Highly likely to be a gas well and you do not want to pay the PPC as they can eat up quite a bit of your royalty. Even more important to get a higher royalty than the 1/8th. I would not do an extension at all. If I cannot negotiate a good lease, then I have no problem with a forced pooling since the time frame is much shorter. Occasionally, if they do not drill in the first time frame, they have paid again if the time frame is extended. With two potential wells, the royalty is much more important than the lease bonus. Sanguine has quite a few cases pending at the OCC for this area, so probably have a drilling program planned.
Trinity pooled sec 20 in 2020 for $650 1/8th and $500 3/16ths, $350 1/5th. Likely to be a bit lower in the next poolings due to drop in prices. I would have picked the 1/5th. That was a cleanup pooling from earlier. Lots of horizontals in the area. The success of the multiple Belle gas wells in 20 would encourage me to pick the higher royalty and the pooling. Keep in mind- hindsight is 20/20!
Very helpful, everyone. Thank you!
Are you one of the siblings who recently (today) got a better lease offer? Just checking in on you . Try again for a better lease of not. They should be willing to talk.
We have been offered a new lease contract for our parcel at $500 per acre with a 3/16th royalty. This is good. However, the new contract still contains all the post production cost language, with the exception of an Exhibit A at the front. Exhibit A refers to a stand-alone page at the end with a paragraph reading,
“Payments of royalty under the terms of this lease shall never bear or be charged with, either directly or indirectly, any part of the costs or expenses of production…”
Does Exhibit A replace and invalidate the post production liability retained in the contract? Does this just save them having to rewrite the contract?
I would like to take this before a lawyer but I was giddy at the new terms and said I would sign with those corrections. Sorry for that now…
Thank you for your help!
In my experience, the addendum usually overrides the lease for the items it addresses, but it has to say so. The rest of the “Payments…” is important. If there is a “however” clause at the end, it can really undermine what you thought you were getting. I always want no post production charges period. And my Addendum has a few more protection clauses in it. (not giving legal advice)
So appreciate your help!