After months of receiving good sized royalty checks - they went down of course when prices dropped but still weren’t small I began to receive lots of legal documents from the attorneys representing Kerr McGee concerning pooling all interests including our 310 acres into a 240 acre horizontal wellborn spacing unit. I’ve been receiving copies of the applications presented to the Oil and Gas Conservation Commission and but really knowing how this could effect me. Today I got a letter and a check from Anadarko. The letter told me as little as possible except that the check for $12.14 was a shut in payment pursuant to the terms of the lease. They also mentioned it was important that I cash the check ASAP.
I can’t make much of this. I understand that market conditions aren’t what they were but they’ve certainly improved and I wonder why would they go to all the legal expense of a pooling application just to shut in the wells. Could it be temporary or perhaps necessary to shut in the wells prior to pooling?
I suggest reading your lease to see what the shut-in provisions are. I would be suspicious of an oil company sending me a check and telling me to cash ASAP.
Does your lease have a shut-in provision? Many older leases do not. If not, than your lease might have expired due lack of production. By cashing the check, you may be agreeing to a lease amendment to add a shut-in provision. If it does have a shut-in provision, so what the time frame is and how much you should be paid. Again, the existing provision could be shorter than what operator intends and you need to be careful not to unintentionally amend your lease. All this depends on your specific lease terms and state law. You may want to have an oil and gas attorney review any paperwork before signing and document or that small check.
Thank you both for responding. I am suspicious about their wanting me to cash the check right away and there is a receipt that they want me to sign and return as well.
The lease is over forty years old and does have shut in provisions and the check references the terms of the lease but the shut in amount to be paid is $100 per well and we have several. My ownership interest is 1/3. The language of the lease seems to indicate that the shut in payment is to be made within a year of the time production stops. So conceivably the payment is for a single well that was shut in within the last twelve months. However, there’s nothing to indicate that and the check says the acres to be paid are 306 which is the number of mineral acres that we own.
Between their insistence that that I sign and cash the check immediately, the lack of information provided and the fact that the amount doesn’t match up to 1/3 of the shut in payment for even one well I think you’re right that I need to speak to an attorney before signing anything.
I’d contact a Landman at Anadarko with all your questions to see what they say. Sounds like they might be trying to CYA. Very suspicious sounding. I always like written responses in cases such as this. Can’t wait to hear the end of this story.
I’ll keep you posted. I decided before getting an attorney it would be best to try to get an explanation from Anadarko but so far numerous emails and phone calls haven’t elicited a response. I don’t know how to contact an Anadarko Landman all I have is the customer service phone number and email though perhaps that’s the same thing, remember I’m new at this and turns out this passive income involves a bit more knowledge and involvement than I’d expected. I’m unfamiliar with “CYA”. Could you explain?
I would not rely on anything Anadarko tells you, even if you are ever able to talk to their landman. I suggest you consult with an oil and gas attorney in the state where your minerals are located.
Gosh, do I feel silly, thought CYA was some sort of oil jargon, lol.
Well, their continued lack of response despite the 48 hours in which they claim to get back to you does seem to point to something suspicious unless it is just their policy not to be forthcoming with information. Is this sort of thing typical of dealing with oil companies and royalties, I mean is it common for and does one need to be on the look out for potential underhanded moves? I guess it’s not exactly a service related industry so they can’t be concerned about losing your business. In what little research I’ve done so far I’d noticed that Kerr McGee was found to have been under paying royalties to the federal government. Wonder if any private mineral rights owners have been able to determine if the same had happened to them.
Did you or your predecessors in title ever sign a pooling agreement (or was there a pooling provision in the lease)? This seems odd that they would pool your THREE HUNDRED TEN acres into a TWO HUNDRED FORTY acre unit (I had to write out the numbers so that I could really EMPHASIZE it). It seems to me like they are trying to use your well to pool other stuff nearby, because you are clearly producing. If there was no pooling agreement, then your cashing the check could be construed as ratifying their pooling election.
Glad you brought that up because it produces another wrinkle of curiosity. The lease, signed in 1970 does indeed have a pooling provision for an area not to exceed 640 acres. This is what’s odd, the 240 acres I referred to was correct at least according to a copy of the initial application to the Oil & Gas Conservation Commission. But I continued to receive further copies. The next was an application to pool all interests in two 240 acre designated horizontal wellbore spacing units. Then there was one for a 480 acre spacing unit. Following that one for two 480 acre units.
Who knows what I’ll receive next, maybe it will get even larger though at two 480 acres it exceeds the 640 acres allowed by the lease.
Am I correct in thinking that pooling doesn’t tend to benefit a mineral owner with producing wells, that perhaps it’s a sort of exploratory mission and should the other areas prove not to be productive it will mean that the oil being produced on our land will be split many ways and we’ll be getting a fraction of what we had been?
Hmm, I'm not sure what to make of the things that they are doing with your pooling. It does seem a little odd. My guess is that they are probably trying to use your producing wells to hold nearby acreage as well, acreage that doesn't have a producing well on it and which may be expiring under the terms of the OGL soon. And it may be possible that they decided to change the shape of the unit designations that cover your property, and that could be why Anadarko is trying to get you to cash the check: acceptance of their new designation by your cashing the check.
You are technically correct, that pooling doesn't tend to benefit the owner with the producing wells, but also, depending upon how Colorado regulations work, it probably is close to moot. Because states often have conservation laws to prevent over production. So if they DIDN'T pool you, the state would probably limit the amount that could be extracted from the wells on your property. But if they didn't pool, the producer would also be more likely to drill more wells in your vicinity, but not on your property, thus offsetting your production by the nearby drainage. However, more wells is terribly cost-ineffective, hence the pooling.
On one of the pooling applications I found an email for the attorney representing Kerr McGee and wrote him pointing out that the lease only allowed for pooling 640 acres and got a response from a Landman. He agreed that was the case however the lease also allowed for pooling larger units to conform to spacing or well unit patterns to comply with governmental jurisdiction. He was pleasant and encouraged me to contact him with any questions. I noticed that the section of the lease that he pointed out also made reference to shut in wells. The language was predictably dense as these sort of documents always are but what I gathered from reading it began to answer my question regarding the $12.14 shut in payment.
Since the acreage pooled now totals 960 (two units of 480 acres each) rather than our family’s original 310 my royalty percentage would change accordingly. That made sense given the approximate math. The lease payment per shut in well was $100 of which my share of 1/3 would have been about $33. Now that the total pooled acreage is 960, over three times larger, my percentage of that is three times smaller or very appropriately 12%. The Landman confirmed that something of the sort was true.