Unitization rules in Oklahoma

Oil and Gas Leasing Help
1

I was contacted by a landman to lease a quarter section SW/4 Sec. 18-3N-10ECM in Texas County, Oklahoma. He said he was leasing for MidCon Energy out of Tulsa, Oklahoma. I know MidCon considers themselves to be “The Waterflood People.” They are interested in the NW/4 and SW/4 of Sec. 18-3N-10ECM Texas County, Oklahoma, and N/2NE/4 of Sec. 24-3N-9ECM Cimarron County, Oklahoma.

They offered $150.00 per acre, 3/16th royalty, and 3 years paid up lease. The lease bonus is a lot more than anything we have been offered in the area in the last ten years.

The section to the west of Sec. 18-3N-10ECM is Sec. 13-3N-9ECM Cimarron County, Oklahoma. It was developed in the 1960s and has cumulated 2 million barrels of oil and 500,000 MCF. There were basically 4 wells on the E/2 of Sec. 13-3N-9ECM. Two wells are still producing about 7 barrels oil per day and 25 barrels water per day.

The W/2 of Sec. 18-3N-10ECM had 2 wells that had production. My SW/4 had a well that made 26,000 barrels oil over a 3 year period, from 1967 to 1970, I assume it watered out. The NW/4 had a well that made 10,000 barrels oil and 80,000 MCF over a period of 15 years, 1978 to 1993. In the N/2NE/4 Sec. 24-3N-9ECM there was one well that made 226,000 barrels oil and 1,800,000 MCF over its life of 30 years, 1965 to 1995.

I assume that MidCon is wanting to start a waterflood and pool or unitize the W/2 of Sec. 18-3N-10ECM with the E/2 of Sec. 13-3N-9ECM and the N/2NE/4 Sec. 24-3N-9ECM. I don’t know of any others who have been contacted by them in this area. I do know they contacted some others to the north about 4 miles by another old oil field developed in the mid 1960s.

I e-mailed the landman my 4 page exhibit “A” and he said he sent it on to MidCon. I have talked to him on the phone and by e-mail requesting information about unitization and he refuses to answer my questions. I asked if he would give me a name and number to contact someone in MidCon’s office and he said he would contact them and get back to me but it’s been a couple of weeks and no reply to my request about unitization or pooling.

I know my neighbor in the NW/4 is interested in leasing his quarter and if he does I know they can eventually force pool me if I can’t get something worked out.

Am I out of line wanting to know how much of my quarter will be in the unit, how big the unit will be and what factors are used in determining my share of the unit? Should I go around the landman and contact MidCon myself or should I hound the landman every day or more often?

Thanks for any help or advice on this matter.

2

Lawrence,

The landman may be having trouble getting info from the engineering and geology departments at MidCon.

MidCon may be trying to see what could be put together in terms of leases before committing to a project and filing with the regulators. It will be an expensive and risky undertaking for MidCon.

The primary things you need be interested in is what new lease terms they may be using, if your royalty will be protected, and the definition of a unit. Keep in mind that MidCon may not be able to establish a unit or units in finality until they reenter wells and run some tests. Perhaps you can get them to stipulate that they will not put less than an entire quarter of yours into a final unit.

By leasing and getting your neighbors to lease, you could be helping everyone make some money. 3 years is not an unreasonable amount of time to commit your land particularly if it has not been productive for a while.

3

Gary,

Thanks so much for your reply. I’ll see if they will accept a clause in my Exhibit “A” stating if they unitize or pool any of my acreage they have to include the whole quarter. Today the landman e-mailed back the old Exhibit “A” from 8 years ago when I had leased this quarter to another company. My thinking is a lot has changed in the oil and gas leasing business in 8 years and I have learned a whole bunch since I started following the mineral rights forum. Thanks to guys like you and other members with your helpful information.

Sincerely,

Lawrence P. Lindley

Gary L. Hutchinson said:

Lawrence,

The landman may be having trouble getting info from the engineering and geology departments at MidCon.

MidCon may be trying to see what could be put together in terms of leases before committing to a project and filing with the regulators. It will be an expensive and risky undertaking for MidCon.

The primary things you need be interested in is what new lease terms they may be using, if your royalty will be protected, and the definition of a unit. Keep in mind that MidCon may not be able to establish a unit or units in finality until they reenter wells and run some tests. Perhaps you can get them to stipulate that they will not put less than an entire quarter of yours into a final unit.

By leasing and getting your neighbors to lease, you could be helping everyone make some money. 3 years is not an unreasonable amount of time to commit your land particularly if it has not been productive for a while.

Good Luck,

Gary L Hutchinson Minerals Management

4

It is true that a lot has changed in 8 years. I’ve lived through many changes in 30+ years and the changes have not been for the good of the mineral owner in most cases. Don’t take a knife to a gun-fight.

Lawrence P. Lindley said:

Gary,

Thanks so much for your reply. I’ll see if they will accept a clause in my Exhibit “A” stating if they unitize or pool any of my acreage they have to include the whole quarter. Today the landman e-mailed back the old Exhibit “A” from 8 years ago when I had leased this quarter to another company. My thinking is a lot has changed in the oil and gas leasing business in 8 years and I have learned a whole bunch since I started following the mineral rights forum. Thanks to guys like you and other members with your helpful information.

Sincerely,

Lawrence P. Lindley

Gary L. Hutchinson said:

Lawrence,

The landman may be having trouble getting info from the engineering and geology departments at MidCon.

MidCon may be trying to see what could be put together in terms of leases before committing to a project and filing with the regulators. It will be an expensive and risky undertaking for MidCon.

The primary things you need be interested in is what new lease terms they may be using, if your royalty will be protected, and the definition of a unit. Keep in mind that MidCon may not be able to establish a unit or units in finality until they reenter wells and run some tests. Perhaps you can get them to stipulate that they will not put less than an entire quarter of yours into a final unit.

By leasing and getting your neighbors to lease, you could be helping everyone make some money. 3 years is not an unreasonable amount of time to commit your land particularly if it has not been productive for a while.