Lease Offer in Garvin County

Got an offer for an OG Lease for Sect. 10-4N-3W in Garvin Co (OK) and I think the bonus offer/Royalty Interest choices are on the low side. According to Garvin County Clerk records, I see that the offering company (Zimmer Resources) already has a few leases for that same section. While the filed leases do give the Royalty interest the owners are getting (3/16) I don’t see anything on a bonus offer. Their offer to us is: $350 bonus w/ 1/8 revenue interest; or $200 bonus with 3/16 revenue interest; or $0 bonus w/ 1/5 revenue interest. Any thoughts about the offer or the company? Feedback appreciated.

The recent pooling in section 3 was the same amount, so that seems to be the going rate nearby. It was even less in section 9. There is a very large fault system running north south through that township. If you are on the west side, the prices are higher and if you are on the east side, offers will be lower. The terms of the lease are much more important than the bonus amount. Be very careful about the clauses as you will probably need to make changes to the lease that they offer you in order to protect yourself.

M. Barnes, I see you talk a lot about seismic faults in a persons mineral interests. I need some education! Can you explain the pros and cons of having a fault in their section? I have seen some comments where people have said there was a fault in a certain area and that was where the company wanted to drill. Another post had said they couldn’t drill in a place because there was a fault there. Confusing. I know in my section 33 4N4W there is a fault. Marathon is drilling a well on the south side of the fault and Casillas drilled one on the north side of the fault. I bet you can enlighten me on all this fault stuff! Do you possibly have a map that shows the faults in section 33 and 35? Thanks, Tom

Good question Tom, but there are no simple answers. The answer is not a binary “good-bad.” There are lots of different physical characteristics to faults, and the type of proposed well is also relevant. I look forward the MS Barnes answer.

Arkomo, fault maps are public domain to some degree, a quick google search should be able to turn up a rough idea of what it looks like in your area.

Faults can cause headaches for a few reasons. One would be the danger of the formation below the fault being one of much higher pressure, bringing the risk of a kick or blowback from the well. The fault can also cause the bit to be bounced off course and therefore miss its intended formation.

I do not have current maps for that section. Faults can be “good” or “bad” depending upon what offset they have. Probably in this case, the offset is so large that one side is downthrown more than the thickness of the reservoir and the other side is high. Since they are going for a shale, it is more of a continuity thing of where they can put a longer lateral on both sides going opposite directions.

If it is a conventional reservoir, you would want to drill on the side with the thickest pay and a trap that would keep it there. Too complicated to explain here in great detail. Faults can be really bad if they are a wide fault zone which is just hash for hundreds of feet with little faults splaying off which would interrupt drainage. Many faults are not a simple plane; they do tend to have a fault zone around them.

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Thank you for the explanation. I see where it can be very complicated.

Now, if you don’t mind, I have another question that I think several people may want some answers to. We will use section 33 4N4W for this example. Marathon is drilling their horizontal well from section 4 3N4W up about halfway into section 34 4N4W. Then Casillas starts their horizontal well just on the other side of the fault in section 33 and goes on up into section 28. What my query is is I know they have both made section 33 a 640 acre spacing for their wells and they will have to figure which company pays what royalties! What a nightmare to figure out! But, they are drilling right along the west edge of section 33. With no horizontal well in the east side of section 33, how can they say they are going to drain the oil field under 33 if they only have a well along the west side only? I am glad they are using 640 acre spacing as this then includes my mineral interests on the east side of section 33. I appreciate your response! Tom

The 640 acre spacing is typical for horizontal wells. They will most likely drill more wells lined up like cigars in the future. After the wells are drilled, they will each run a directional survey in the well to determine exactly where the perforations are in each section. There is a formula that will be used to calculate the revenue for each well in each section. The normal formula is:

net acres/actual spacing acres x royalty x % perforations in each section.

The “actual spacing acres” is the acres for the section. Not all sections are exactly 640 acres, so they will use the surveyed acres. Your net acres goes on the top of the term.

For example, 10 undivided acres at 1/5th for a well that is 30% in section 33 would be: 10/640 (if actual) x .2 x .33= 0.015625 x .2 x .3333=0.00103125. Each of the wells drilled will have slightly different lengths, so each decimal will be slightly different.

Thank you for all your expertise answers. I am sure I am not the only one that sure appreciates your help. Tom

The offer is insanely low. I get leased at 2K per acre in that area

Andy, $2000 at what royalty %?