I have a question. What happens if you don’t lease when they come to you and you just sit and wait for them to bring in oil or gas. At that time don’t they have to make a deal with you to bring the well in? This is what I have heard. So in my mind it makes sense to not take the upfront money and just wait and see if they bring a well in and than possibly you will get more because they can’t drill without you? Is this correct? I have had an offer to lease :
$800.00 per net mineral acre with a 3/16ths royalty and primary
term of three (3) years. This lease includes a two (2) year option at $800.00 per net mineral acre.
@Candi_Choumas, as @TennisDaze indicated in the other thread containing this subject, state laws will generally be set up to heavily discourage mineral owners waiting for actual production before asking for a lease. In the fable of the little red hen, the hen does all the work of mixing and baking the bread only have others come and ask for their share when the baking is all done. Likewise, operators do not like to be put in the position of doing all the exploration, leasing, permitting, drilling and bringing the product to market and then having someone come to ask for their share. At least when you lease your minerals beforehand you are helping the operator procure a permit and you are risking something by taking your minerals off of the open market for several years and you are risking that the operator is going to do a proper job in developing your minerals. You are also showing public support for the project and helping to keep the operator’s expense predictable. If you do not even do these things, the operator will only owe you the minimum, if anything, and your earnings may depend on “well payout” and be taxed differently as a working interest. Generally, it is better for all parties if you are leased before the well is drilled.
Waiting for some competition is fine, but if you wait too long, companies may not want to drill or lease in that area any longer and then you miss out on a lease bonus. Worst of all is if your acreage is pooled and you don’t lease. They can certainly drill right through your acreage (unless it’s divided acreage, but that’s very rare). You will be deemed non-consent and not be allowed into the well until the well pays out 200-300%. So you miss out on your portion of most, if not everything that well produces. All depends on what state you are in, but being deemed non-consent is a terrible position to be in as a mineral owner. What state are your minerals in?
If they drill your minerals and you do not have a lease than you become a working interest owner in the well just like the operator which means you have to pay your share of the drilling and completion costs so if you own 20% of the unit for example and the well costs $4 million then you will get billed for $1 million but then you get your full share of the sales.
Candy, If you are in OK or WV, you have pretty good options. Other states, not so much, 3/16ths might be a low royalty depending upon where your acreage is located. If you want to share the state, county, section, township and range (or block, abstract name and niumber, plus section for Texas), then we can help more.
I’m sorry I thought I did. Custer County Oklahoma Sec 1-15N-17W. I kinda thought it would be better to hold out till the pooling which is what I think means once they drill and hit oil or gas? Then you would have more bargaining power but from some of the comments I have read at that point I guess legally they can offer you the lost bonus or royalty? Is this correct? They have drilled on this site before and hit gas and shut it down because I guess they were going after oil. The last time I leased it with a different company they were paying $1000 an acre and this company is only offering $800 an acre with the 3/16 royalty. Your help would be appreciated. Thank you
For those with minerals in West Virginia, the state now has a “forced pooling” law. So the oil company can file a lease for you. You will get the average royalty of those that have leased with the company. I believe you would probably be charged post-production expenses on the oil and gas that is produced though. If you negotiate a lease, depending on volume of acreage that you hold, you can usually get good royalty %, good terms and possibly get a Gross Proceeds lease which will not charge you with those expenses to be deducted from your royalty income.
The pooling orders will be based on the market rate of money paid per acre on your section and, generally, the 8 sections surrounding your acreage.
The money may go up or it may be the same.
also, if you wait, you lose your option of negotiating lease terms.
Further, there are stories of parties who waited for the pooling only to have oil prices take a dive, and then nobody ever pools or drills your acreage.
In other words, there are some advantages to waiting for the pooling, but it comes with some risk and some downsides.
I read somewhere that said if you wait and they bring in a well you will have to pay possibly $25,000 to fract something like that. Are they fees you have to pay the operator ?
An owner only has to pay for drilling, completion, etc, if they participate.
To participate, the owner has to make a definitive election to participate in the well. The participants have to pay their share of all expenses, not just fracking.
A pooled or lease mineral owner does not have to pay these expenses in Oklahoma.
Also, with penalty like Arkansas might be 300%, SO the operator gets to take 3x the actual costs of your prorated share for you not paying up front. You can go to the O & G hearing on the well and can participate with a JOA, but you can take the terms offered during the hearing. It should be the highest royalty and bonus, or add a Favored Nations clause to the lease they offer you. You do not want to be a partner to the drilling… We call it “operated to death” - you will pay for every nail they use to tack up the well sign, every trip they drive by the well, etc. You will be cheated.
1-15N-17W does not have any OCC cases at the moment. Although quite a few nearby. There is a permit for a horizontal well into section 2 just to the west of you. I do not see any current leases filed in section 1, but quite a bit nearby. The range of offers is from 3/16ths to 1/4th, so I would say 3/16ths is on the low end.
In OK, you can choose to lease or you can wait for forced pooling. You must answer the forced pooling within 20 calendar days or you will be assigned the lowest royalty which is usually 1/8th and not optimal. If you can get a really good lease with an agent, that is the best, but some companies are difficult to work with and then pooling is a good option in OK. Most of us would pick the highest royalty option given as many years of a productive well or wells far outweighs the one time bonus payment for the lower royalty.
In Ok, the pooling acts as a sort of court appointed lease so that all mineral owners are accounted for before drilling. This article may be helpful. 0_The Pooling Process in Oklahoma.pdf (340.4 KB)
If you are offered a draft lease and want to go that direction, it is wise to get a good oil and gas attorney to review it as the drafts are rarely in the mineral owner’s favor and require quite a bit of negotiation and editing.
Other states have completely different rules, so the answer to the question would be different according to their guidelines.
Thank you for this answer. I have mineral rights in another section of Oklahoma and a couple of months ago I was offered a lease on it and turned it down. I hired Mark Walravens office to represent me however the operator wouldn’t budge on the royalty and the lease option which was for 3 years and I didn’t want to tie it up that long so I declined the offer. From talking with the Landman on this new lease offer on this different section they seem as though they are willing to negotiate.
So because I didn’t take the lease on the other section when I get the forced pooling letter can I hire my attorney to iron out the details or will I personally have to come to Oklahoma? Is this a court hearing?
You do not need an attorney for a pooling or have to come to OK. The operator goes before the judge with the geologic and engineering facts and what they are planning to do in drilling the well. They have to give the judge the offers that they have made for that section and any of the eight touching sections in the last year for leasing. Then the judge will give an order for two -four options of royalty/bonus pairs for the remaining un-leased mineral owners. You have 20 days in which to answer. You can hire an attorney and go to the hearing just to observe and learn, but not necessary at all. No details to iron out because the judge is making the decisions. Three years is a normal leasing time. For a pooling order, the timing is usually 6 months to 18 months. Usually a year, but Covid had some longer timings. The document I attached above gives a good outline of how the process works.
Not so…..For the first time ever, I tried to go without leasing - because the Bonus Payment was too low. I did not lease and received Production Costs monthly with DO NOT PAY on them. Two years later, I received my portion at 100% royalty for over $650,000…….My cousin was out of the country and didn’t lease either, her portion was double that.