The leasing companies I’ve been contacted by are including post-production charges in their leases and are not willing to negotiate this item. Is this what everyone is seeing in their lease offers? What does this mean financially to mineral owners?
The operators will say that this is just your share of the costs of compression and transport to get your product to market, which is true. The problem is that it allows an unscrupulous operator to charge anything they want against the royalty owner. These costs usually run 10% but I have seen cases where royalty owners were being charged 40%. The argument that I make with operators is that I have no control and no recourse if i think I am being cheated. Even if I feel that the company that I sign the lease with is honest, eventually the production will be sold and the next operator may not be so honest. Allowing post production charges will cost you money. If they won’t negotiate on this, then demand a higher royalty rate to offset the costs.
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The first lease contract that was presented to us included post production fees. I was advised nott to accept this and we successfully negotiated them out of the final contract. Sounds like a bottomless pit to me.
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Oklahoma is an “implied covenent to market” state which means that the operator has to get your product to market without charging you-unless they put the post production charges back in the lease. So of course, the draft lease usually has them. You can negotiate them out or you can wait for pooling instead. Most of my poolings have had no post production charges.
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Our efforts to negotiate the post-production charges and other unfavorable terms out of a lease have brought only blunt comments such as: what you request is unreasonable; sign the lease I sent or we will move to force pooling where you will not have any clauses; and I have exceeded any OCC requirements in my negotiations with you.
We are of the opinion that there have been no negotiations and will wait for forced pooling, if another company does not offer a more favorable lease. Thank you.
Some agents use force pooling as a threat. I love force pooling in OK.
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.
0_The Pooling Process in Oklahoma.pdf (340.4 KB)
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