Should I sign a Modification of oil and gas lease for Pooling? The original lease is from 1910. Is there anything to worry about? Thanks!
Laura:
Most leases from the early 1900's did not include the rights to pool lands with other lands to form a production unit. The main reason was because there was not any entity governing the oil and gas operations. Not knowing where your land is located, there is now the Texas Railroad Commission, Oklahoma Corporation Commission, Louisiana Conservation Commission, etc, that set the rules that the oil and gas companies must follow.
To keep the oil and gas from being "over produced" the Commission's allow the companies to form units by pooling lands together, usually 640 acres for gas units and 40-80 acres for oil units. This allows for longer production of the wells, which means money lasts longer to the landowners/royalty owners.
My answer to you is NO, there is nothing to worry about. Without the pooling, your acreage might be left out and not be drilled at all.
I am assuming you are currently held by production from the 1910 lease, is that true? Does your lease have any terms limiting the production of minerals to a specific geological formation, or depth? What area are your minerals located?
Minerals are in Doddridge County WV, The Marcellus Shale. We don't have a copy of the original lease - but I'm guessing no depth limits were put on leases back then.
The operator is asking for rights they, or their predecessors did not pay for in the original lease, There should be a significant value to you from granting more rights. Your lease could become uneconomic to operate and expire because production shut down and you would then be free to lease again for a large bonus and possibly 50% more royalty. You should be well compensated for agreeing to give that up. I personally would be wanting to negotiate a new lease, a novation.
Laura Matundan said:
Minerals are in Doddridge County WV, The Marcellus Shale. We don't have a copy of the original lease - but I'm guessing no depth limits were put on leases back then.
The large company asking for the pooling modification says that land is held by production and gave well names. They said it could not be negotiated. I asked for a horizontal well drilling bonus - but they said that was not done. Have you done a novation before in a similar circumstance?
Laura, I have not done a novation in like circumstances. The thing is that yes, the acres are held by production but they can't pool your acreage with other leases to drill a lengthy horizontal well. Considering your old lease and how little it may pay you, they have many times as much at stake as you do, and if you went ahead and said that anything is better than nothing, you don't know what will happen in the future. They don't have to drill a horizontal well at all, you have no gurantee that they will, or that your acres will be in the pool. They could be wanting you to sign an amendment just to increase the value of the lease to them so they could assign it to someone else at a profit above what it cost them to acquire it. There are alot more ways than production to make money in the oil business, but you as lessor only get paid from production.
I am saying there should be something in it for you, or the answer should be no. It's not oil friends, it's oil business. You can not possibly make them like you, if you signed your entire interest over to them they would forget you the instand the deed reached their hands. They certainly do not respect you. Why would you give them something for nothing?
If they need this for horizontal drilling, they should give you a gurantee that a well including your acres will be drilled in a specified time, a drilling commitment or the pooling agreement is null and void. Wouldn't that be fair? They get what they want and you get something? Even if it is not immediately a cash price?
They often say that they won't pay for something, that it is not done. They can do whatever they want. It's not like it will break them. Negotiations may be long and it may take a couple of years before you become a priority but I believe that eventually they would try some checkbook diplomacy.
There are many different rights involved, the rights of ingress / egress, right to produce, the right to pool and you have not been paid for the right to pool. I don't want you to assign your right to pool to me, but if I had it, they would not come to me and ask for me to assign it to them for free, at least not more than once. They just want to take advantage of you because they think you are a weak unknowledgeable mineral owner.
I would say adopt a wait and see attitude, after all they don't have the bit in the dirt, do they? It's not like it would put any money in your pocket for years if you signed tomorrow, right? How does it hurt you to wait and see other than them sending you junk mail? I use unwanted solicitations to light my barbeque.
I wish you the best of luck whatever you do because consciously known or not, you are in the oil business and how you manage things has alot to do with how much you profit. What other business do you think would profit if you just gave away what you had to sell? Would you give your car to someone who just walked up and politely asked for it? The right to pool could be far more valuable than your car. They may say , oh, but this is underground and of no possible use to you, it's still valuable none the less.
R W is absolutely correct. They are essentially asking for more rights that were not part of the original lease. Why agree to that without compensation, defined terms, or term limits when they are asking for a favor from you? R W mentioned a great point that the land may never be pooled for a new well, but merely having the right to pool (especially if they get it for free from you) may make their lease more valuable which they can then flip (sell) it to someone else at a profit. The only other question I have is, how many acres are covered under your lease?