Section 18, Township 7 North, Range 10 East Offers?

All,

I’ve received varying offers for this land and curious if anyone has any insight as I do not know Oklahoma very well. I have about 88 acres in this area. I’ve received older offers of $800 & 1/5 or $1200 & 3/16. I’ve received a more recent offer of $3,000 & 1/8 or $2000 & 3/16 but they said they had to retract the offer due to geological reasons at this time, but may come back with an offer.

Any advice would be greatly appreciated!

Trinity Operating just pooled section 17-7N-10E for $1200 3/16ths or $800 and 1/5, so your offer is in alignment with recent pooling. Personally, I usually choose the higher royalty and lower bonus in known producing reservoirs. The bonus is only paid once, but the royalty can extend for not only the current well but any future wells under the terms of the lease. You may need to negotiate the clauses in the lease to be more favorable to you. I rarely sign a first draft of a lease as it is usually all in the operator’s favor.

That’s great advice thanks so much! My property is not located within that current pooling you mentioned correct?

You indicated opting for the higher royalty. I know it’s highly speculative, but what is an average payout or production you’ve seen on oil or gas in that area assuming it did produce. Of course I’d take as you giving me a ballpark guess and not rely on it. I’m just so new to this that it’s hard for to get an idea of how important each 1/8 is. Thanks again!!

You are not in the pooling I mentioned. No recent ones were within the contiguous eight sections.

The amount of production would likely be similar to wells nearby with the same reservoir and same completion techniques. It will vary due prices of products and decline. At this moment, there are quite a few permitted horizontal wells, but the closest productive well would be the Joyce 1H well in 16. It is estimated to have ultimate recoverable of 2.2 BCF and will last for decades.

Your equation for royalties is net acres/actual spacing acres x royalty x % perforations in your section. So using that well as a guide, you example might be 88/640 x royalty x 1.00 (for a one section well). For 1/8th, your decimal is 0.0171875, for 3/16ths, it would be 0.02578125, for 1/4th it would be 0.034375. We know prices will change over time and there is a time value of money, but for simplicity’s sake, let’s use $2.00 gas just to keep the math easy. Totally speculating here and not using any condensate.

2,200,000 mcf x $2.00=$4,400,000

1/8th = $75,625

3/16ths= $113,437.50

1/4th= $151,250 and etc.

You have to pay any taxes and any post production costs if allowed in your lease.

And don’t just assume one well. You only get paid the bonus one time, but you will get paid the royalty on any extra wells that fall under the lease terms. The pending cases near you are for multiple wells.

You’re awesome! Thanks for the quick reply. Just a quick clarifying question: in your speculation numbers ($75k, etc.) would those be per year for the life of the well or would those be the total numbers for the life of the well?

i.e. $75k per year for decades or $75k over the decades it produces gas (closer to $3,700 per year)?

Thank you so much again!

In general, that is over the life of the well(s). Most of the production from a horizontal well is in the first four years. The production shape is frequently called a hockey stick shape. If you turn it on its side, the blade is the first four or so years and the stick is the next many decades. The wells come on strong and immediately go into a steep decline. Then after a few years the decline tapers off some and remain at slower and longer decline.

You note the pooling of section 17 Hughes County. I have rights in that section but little knowledge of how the project proceeds. Now that it’s pooled, what will be the next steps for the operator and what might be a timeline for activity. Thanks!

Check your pooling order to see if the drilling time frame is 180 days or 365 days. That gives you a guide to the timeline. In general, the reservoir has to be spaced for drainage, the location must be approved, a permit will be issued. Theoretically, drilling will start within the approved timeframe. If the horizontal well is one section, it may take three-four months to drill and complete. If the well is a multisession well, it will take a bit longer. Division Orders “might” come out about five months after first sales. Statutory requirement for payment is 180 days from first sales. If the well is multiunit, then the time may drag out a bit more. If they miss the 180 day payment, then you can ask for interest.