Why wouldn’t a company just not negotiate with a mineral owner and force a pooling order. That seems to be in the company’s best interest for it to be pooled.
A couple of reasons that might apply and I’m sure there are more. I don’t believe a company can file to drill until they have a certain percentage of the unit leased or bought. It’s the remaining hold outs who get pooled. Second, by law they have to attempt to negotiate a lease before they pool, though that doesn’t mean they have to try very hard. Third, a pooling order is only good for a year in Oklahoma I believe, where a negotiated lease is usually 3 years and sometimes has possible extensions in it.
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Thanks Duff,
Could you explain how a 3 year option works? If X company has a 3 year primary term, and exercises their right for 3 additional years, how is the mineral owner paid for those 3 extra years?
First of all never allow them to put an extension into the lease… If it’s in the lease then the terms will be spelled out… Maybe they will pay another bonus ( if the lease says so ) if not they can extent and pay you nothing!!! DO NOT allow a lease to have an extension clause. It should say NO EXTENSIONS in the lease.
This is the language that they have presented in their lease agreement…
- Notwithstanding anything to the contrary contained in this Lease, for the same consideration, Lessor does hereby grant to Lessee, its successors and/or assigns, the option, but not the obligation to extend the primary term of this Lease and all rights hereunder for an additional Three ( 3 ) years. Lessee shall exercise this option by tendering to Lessor, an additional bonus payment equal to the sum per net mineral acre equal to the amount of that was originally paid for this lease. This additional bonus payment shall be considered tendered by Lessee when deposited with the U.S. Postal Service for delivery to the Lessor by certified mail at the address above on or prior to the expiration date of the initial primary term of this Lease. Upon tender the primary term of this lease will be amended from Three ( 3 ) years to Six ( 6 ) years.
I agree with Bud, I don’t want an extension in my lease. If the marketability of the property is down for whatever reason when the first term is over, price of oil and gas are down for instance, they aren’t obligated to lease it again and probably won’t. If the market is up, you are obligated to lease it to them and can’t shop around for more money and better lease.
Reasons for a mineral owner to negotiate a lease rather than be pooled are you might help a company acquire enough interest they can drill a well. You might get better terms. They might lease it for three years, never attempt to pool the people who did not lease and never drill it. That’s happened to me several times. If I had waited for pooling I’d still be waiting.
That said, I think I’m about to let a property go to pooling (Grady Jupiter Well) and have my own questions about some things. Does the pooling order get filed at the county like a lease does so a record search there turns up the property was pooled? Four main issues we look at in a lease I’m not sure how they get handled in a pooling. Warranty of title. We try to not warranty title. If pooled, then paid for years of production and then a title issue surfaces, are we on the hook to pay it all back, probably with interest and attorney fees? I assume they might require us to clear up title issues before they pay us in a polling, where if we had a non-warranty of title clause in a lease we could fall back on that. Depth clause…we would include one in a lease. If pooled are all depths in the unit HBP from then on? Pugh clause…I do understand we have a statutory Pugh clause. Is it good enough? Post production costs with a pooling would be only as allowed by Mittelstadt case law?
A company can drill a well if they have at least 1 acre of leases. If there is a lot of leasing they try to get more leases than anyone else so they can control the drilling. I do lease extensions for 2 years with 1 1/2 times the initial bonus payment, but not always. Pooling orders are not filed at the county. If you are named you will receive it. If you are leased you will not. Someone might lease you without clear title but you shouldn’t be paid for production until it is fixed. I always scratch the warranty clause and try to get in writing or email that I am not responsible for re-payment of any bonus money paid if I am found to not be in title. Only the depths that are pooled will be held by the production of the well. I add depth, pugh and no deduction or limited deduction clauses to my leases. You can specify certain depths on your lease. You will be paid a certain price per formation, which could be a lot less than for all depths.
Darla, So what do you do if the landman says, they can’t except those clause’s?
Cbottom…you can ask what they will accept, keep negotiating or walk away from leasing.
Here’s a document I found that outlines pooling in a little better depth than others I have seen. It does say no minimum leased amount is required to pool.
https://www.occeweb.com/og/The%20Pooling%20Process%20in%20Oklahoma.pdf
On post production costs charged to those who are pooled it says: " Your interest will probably be charged post production charges under a pooling order, however, you might be able to negotiate a “no deductions” lease with the oil company."
But I also read on this page linked below the court ruled there is still an implied covenant to market in place for those pooled. It’s as muddy as everything else I’ve read on post production costs. http://www.lorman.com/resources/oil-and-gas-rights-in-oklahoma-royalty-litigation-17057
The last lease extension clause I had in a lease was for the same bonus amount paid on the initial 3 year lease to be paid again for two more years. They did not renew. We leased it immediately to someone else. If the clause were written the other way around, where the mineral owner could elect to force company to extend the lease, they would never agree to it. There is no good reason I can think of why a mineral owner would agree to include an extension in their lease, bind themselves to it and not the other party. We were still learning then, and are still learning now.
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Don’t sign bad lease on the threat of forced pooling.
I often force pool if the offering company will not negotiate a fair lease. Nothing wrong with it. I actually prefer it in some cases. Essentially, a pooling is a short lease with both a top depth limit and a lower depth limit. Free to lease above and below the zones that are pooled.
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I have a site that may provide some answers in a simple format.