I have royalties in 160 acres (1/4 section). Before my dad passed away in 2019 he was able to break the lease on these royalties from 1971 at 1/16 production. Production monies he was receiving was less than 1 dollar a month. Basically the company was trying to hold the lease by claiming it was still producing. They lost and the lease was broken. The other three 1/4 sections are still under the 1971 lease which I do not have royalties in. Currently I am trying to lease my 160 acres in Caddo County, Oklahoma Section 23, Township 9N, Range 9W.
Questions:
If I lease, can they only place a well on my 160 acres or can they place it anywhere within the entire section and is it possibly dependent on a well depth clause?
How does this work for a horizontal well? Is my 160 acres only in play or is the entire section in play along with other sections?
Basically I’m trying to find out if my royalties are as lucrative if I’m the only royalty owner in the section that can lease. Sadly I don’t have a copy of the 1971 lease agreement my grandad signed.
It depends on the drilling and spacing unit that the Oklahoma Corporation Commission grants. In all likelihood, if there is interest in your section, it will be spaced on a 640 basis or a multi-unit section which would be possibly 1280 or more.
If you lease, or if you don’t and you get statutorily pooled, the well could be drilled anywhere in the section or even to the north or south of the section. In terms of royalty payments, it doesn’t matter whether it is on your tract or in the other 480 acres.
As to a horizontal well, the drilling and spacing unit would likely comprise your 160 and the other parts of the section or even two or three sections.
It helps your position that you have a large swath of acreage. But, the value really lies in location, location, location. If your minerals are in the fairway, then the market price is higher. If it is not, the value is less.
Continental just drilled a three section horizontal well just to the west of you. They have three-1280 acre units. So you can see that one well can affect multiple sections. Are you sure you have the entire 160 acres? That would be very rare in OK due to generational fractionation. Most leases state the gross acres which could be 160 acres, but as grandpa gave his quarter section to this children and then they gave their parts to their children you may have quite a bit less than 160 acres.
Were you getting paid on the Willie Lefthand gas well? It is spaced at 640 acres and was drilled back in 1975 before many leases had depth clauses. It looks like it is very near to the end of its life. I see last production in Oct 2025, so may be done.
When I said I have 160 acres you are correct in assuming not all of it is my royalties.
Yes, the lease my dad broke was the Willie Lefthand lease.
Continental is wanting to lease from us in Section 23 and our other royalties (80 acres) in Section 10, Township 9 North, Range 9 West of Caddo County. From what I gather, these royalties are less attractive to them due to location, hence the lower lease offer of “maybe” $1,250.
Yes, Continental is drilling a whole set of those 1280s just to the west of you. Your area may be at the edge of what they are testing. You can either lease or wait for pooling which has its own advantages. Wise to get a good oil and gas attorney to look at the lease as it likely will not be in the mineral owner’s favor and needs significant edits. Do not hand over a lease without getting paid the same day.
I have an attorney that will be writing our lease if we do lease, but how may it be possibly more advantageous to pool rather than sign a lease? That seems like you’re leaving money on the table by losing your bonus.
You do not lose a bonus at pooling. The operator must offer options that include the highest bonus royalty pairs that they offered on that section and the contiguous eight sections within the last year.
Pooling often has less post production charges than a lease due to OK law.
Pooling is also a shorter time frame, usually six months to 18 months, so shorter than a lease. I have received multiple bonus amounts in some cases where the well was not drilled in time.
Pooling is limited to certain reservoirs, so essentially a depth clause. I have received extra bonus amounts by additional poolings above or below the original pooling reservoir.
@jcann I’m interested in your original post indicating your dad was successful in getting a release from an operator who claimed you were HBP…. I have a scenario where there is a marginal well (at best) and we are not being paid a shut-in in over 18 months…but he claims the well is still producing. I’m not convinced and OCC records show no production reported. I’d like to get out of this lease but a lawyer indicated this is a lengthy process and costly. @M Barnes what say you?
I will search for the paperwork once I get home. I know it was an easy lease break and didn’t cost anything. I don’t know any of the specifics other than my dad initiated it through an attorney, it wasn’t contested, and it was broken shortly after his passing.
One other thing. The attorney wanted to broker a lease agreement for a percentage of the monies afterward. This may have been his way of making something from breaking the lease. We didn’t lease and he didn’t make any money.
Thank you for the reply. This current operator is not helpful and he’s probably intermittently flowing the well to show production, but I know it’s so he can participate/farm out to new companies coming into the area.
The steps are a demand letter. If it is ignored or opposed, then one has to file suit to cancel the OGL.
Sounds simple, doesn’t it? But the answer is how hard is the company going to fight? If they release everything outside the wellbore early in the process, it might work out. But if they put up a vigorous defense, you may be in for the long haul.
Further, is your acreage in a county that matters?
The example I always used is somebody gets $100/yr in royalties. They break the lease, but nobody else comes along to drill; all they did was just give up $100/yr.
Also, there are a lot of defenses to cancellation of a lease. The fact that mathematically the well doesn’t make much production doesn’t end the discussion. A relatively well-known case is one where the company is producing from formation B, and they intend to produce the formation until there was total cessation of the hydrocarbons. Then they were going to go uphole to formation A.
The court ruled against the lessor, saying this was the action of a prudent operator.
Pooling in OK is very different than in Texas. I will let a Texas expert explain their pooling and its rules. Here is the article for OK. 0_The Pooling Process in Oklahoma.pdf (340.4 KB)
