Need Help Selecting Lease Option for Forced Pooling

Oil and Gas Leasing Help
1

I’ve received notice that the mineral rights I own in Seminole County have been force pooled and I have a very short period of time to select my leasing option. I’m seeking advice on which option to choose.

Here are the options I’ve been given:

  1. One-time cash bonus of $125 per acre + 1/8 royalty
  2. One-time cash bonus of $100 per acre + 3/16 royalty
  3. Fully participate in the well drilling cost. The total cost of the well is ($284,730 dry hole / $500,799 completed for production). The leasing company is requiring the full production amount up front (not the dry hole amount). Thus my cost would be $10,433.31. I’ve been told I would get half of that back if it’s a dry hole, but that presumes they don’t do any fancy accounting to avoid refunding me that.

NOTE: According to the pooling action, I must select one of these options or I will not be able to participate in future wells drilled in this Section by this company. So I will be selecting one of these. Also, if I don’t fully participate now, I cannot fully participate in any future wells. I would only be able to get the same royalty payment I select now (without any additional cash bonus).

Here are the questions I have:

  1. With the impact technology is having on the oil industry, approximately what % of new wells being drilled today end up being dry holes?
  2. Does anyone have any suggestions as to which option is the best deal?
  3. What does the average oil well produce? (I think this is oil but I have to double check as the pooling action doesn’t say)
  4. How long does it typically take to get your money back if it produces?

Here is the specific info on my mineral rights:

State: Oklahoma County: Seminole Name of Operator Seeking Lease: Circle 9 Resources, LLC Name of Leasing Company: Centennial Land Well Name: E-Mays 1-2 Location: SW/4 Section 2, Township 9 North, Range 5 East, Seminole County, Oklahoma Total Acres in the Pool: 160 Number of Acres I have: 3.33 Undivided Pooling Action: 677067 Cause CD No: 201800294

Thanks in advance,

Jonathan

2

There is no such thing as a typical oil or gas well. It all depends on location. Another way to look at this is that one couldn’t determine how much rent is usually paid on a rent house, and how long it would take to pay the rent house off if you bought one. It depends on location and a lot of factors.

Now, as to participating. I wouldn’t recommend it.

Let me address the dangers of participating, in general, not necessarily, this section. BTW, this was what I copied off of a prior poster who wanted to know the downside of participating:

This was the answer I gave at that time:

Several large dangers possibly loom: 1) The well runs into mechanical problem and the costs are 2-10 times of what was estimated; 2) a pollution problem occurs and you get named in a pollution suit; 3) the operator doesn’t market your gas and you have to threaten, cajole and deal with the marketing of your gas; 4) After the initial well is drilled, the operator proposes a six well package that you have to consent to or go non-consent. The cost of the six wells is fairly great. If you go non-consent, then you may have relinquished your interest. 5) the well gets shut-in. I.e., you spent your money and continue to pay joint interest billings every month, but no revenue is coming in; 6) the well runs into mechanical problems, there are cost overruns, the well gets shut-in (so no revenue is coming in) and the operator proposes six more wells in which you have to elect to be in or out.

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3

Tim,

Thank you! That’s exactly what I needed to hear! I knew there had to be risk I wasn’t aware of, but you’ve totally enlightened me to what those risks might be. I’m totally convinced now that I’ll be choosing one of the royalty based options.

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4

Tim is right, take the 3/16.

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