Novice needs help on an oil lease proposal

#1

I have received a letter from Native Exploration LLC to either participate (I’m not interested) or the choice of two lease options for mineral rights in the area they plan to drill

Their description is the drilling of the Sacred Sun 5-32-0603 1WXH, a multiunit horizontal well to test the Mississipian, Woodford and/or Hunton sources of supply. It is to have a vertical depth of 9740 ft and a total measured depth of 20,940 ft, Dry hole cost $2,428,465, completed well cost of $8,374,711

The surface hole will be finalized at a later date. The proposed completion interval will be at an approx location no closer than 150 ft from the south line and no closer than 330 ft from the east or west of Section 05-6N-03W and no closer than 150 ft from the north line and 330 ft from the east or west line of Section 32-07N-03W. The interim allocator factor will be based on 50% of the perforated lateral lying in Section 05 and 50% lying in Section 32

I honestly have no idea how many net acres I have rights to as this has been passed on to me.

They propose the following 1 Lease your interest to Native for a bonus consideration of $2000 per acre with 3/16th royalty, delivering to Native 81.25 % net revenue interest 2 (same as above) but $1000 per acre and 1/5 royalty

My questions are 1 Are these fair proposals for what is currently being offered?
2 How do I find out how much net acres I might own in this area?

#2

Looks like you are in McClain County, I’m sure this discussion will be moved there shortly. You have many options including not leasing with the company. As I’m sure others will chime in, the bonus, while nice, can be the least important feature of your lease which may last for decades. The devil is in the details, no deduct clause, depth clauses, etc.

#3

Native has not filed any cases yet on section 32, so time for getting info. First, ask the leasing agent how many acres they have listed for you. If they do not know, then that is a clue that they have not done the title work yet and the timing is a bit longer.

Hunt down those probate documents and see if you have a legal description. They will tell you a lot about the number of acres you own.

There are other companies leasing in the area, so I would stall a bit and see if you get other offers close to the pooling. Always ask for what they are offering for 1/4th. That offer is generally in the ballpark. Go ahead and get a copy of their proposed lease. Since I get offers from them all the time, I can suggest that it will need some negotiation to be more in your favor. But it can be done.

#4

Thank you both for the replies. I am very thankful for your help and for this website that I stumbled onto while googling mineral lease options. You mentioned stalling. Can you explain further the process concerning “pooling”? Do other companies have an opportunity to bid for leases in the area before they close? Are mineral right owners forced to accept some offer, say if the majority of owners accept their offer?
I will follow up with your above recommendations in the meantime.

#5

Pooling is the process by which unleased mineral owners are forced into participation in a well. Once a pooling order is entered, the owner is provided a copy and given 20 days to make an election between several bonus/royalty options. If the owner refuses or neglects to make an election, then they are treated as though the accepted the option what provides the largest bonus but the smallest royalty. Richard Winblad

#6

Anyone can lease before the closing of the pooling order. They just have to have the lease filed in the county clerk’s office before that date or they will get the worst pooling option assigned to them. If you do not lease, then you can wait for the pooling and select one of the options offered by the judge. Each owner has their own choice. No majority rules.

#7

I received the exact letter with the exact well proposal sections you stated.i have no idea what to do.have you spoken with a lawyer?

#8

I received these exact offers several days ago.enclosed are court documents filed Feb25/ 27.i have zero knowledge on these matters and am confused as to how to proceed.i spoke with the reps of Native Exporation and was informed I am entirely to 4 acres of Sacred Sun sections 05-06N-03W and 32-07N-03W in McClain Co. I have been attempting to understand the basics via google so I can at the very least have questions,but still wish to seek advise from a professional.

#9

One point here for those who are “out in the cold” on oil/gas — You have to remember that the oil/gas company and their leasing agents are most often “not on your side” when it comes down to final numbers and contracts. And those contracts last the life of wells – just plugged a well on our farm that was paying out from a lease agreement from 1983!

Never bad to consult with a knowledgeable attorney in these matters and to get the best bang for your buck, be sure to reference the “Mineral Help” tabs in the forum – especially the Oil/Gas 101 and Leasing My Land — before your consultations — you’re understanding will be much better if you do your homework…

Just my two cents…

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#10

Beware of Delivering Lease Without Payment:

Failure of a company to pay a lease bonus is a theme that has been raised in this forum far to often. Below are a few discussions on the topic. It is always best to exchange a lease for a check at the time of the transaction. This may not always be possible because of distance. In such cases it is probably better to have an escrow company or attorney to hold the lease until the consideration is paid.

Sometimes companies file leases without payment of bonuses.

There have been cases were companies take leases but never file them. They return the leases later stating that they were never funded by the company. In the meantime, the mineral owner cannot sign with another company.

It is much easier to prevent the issue than to remedy it after the fact.

Below is a sample of Nightmares:

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#11

Well said Richard, keep up the good work.