I have only a week left before a pooling order expires for Custer County OK, Section 9. I inherited mineral rights and am getting contacted by a lot of landmen.
Can anyone explain why a 1/5th royalty would be better than 1/4th? (I saw someone wrote that here and maybe it was a typo, because it makes no sense to me.)
Is it better to lease to the operator, Mewbourne Oil, or better to lease to a pooling chaser land man who is offering a larger bonus? Is the well operator more likely to draft a fair lease?
Is there anything specific to watch out for (or demand) in a lease?
Is “participating without consent” an option, whereby the participation costs are deducted from royalties, and once paid up, the royalty becomes 100%?
When there are a bunch of landmen trying to lease your mineral rights, does that mean it’s likely a good investment and one would be wise to participate rather than lease?
Thanks in advance.
Good questions.
1-1/4th is better than 1/5th. (25% is better than 20%)
2-You want the either the best lease with the best clauses or the best pooling offer. In this case, you probably do not have time to get a good oil and gas attorney to review the draft leases and make the necessary edits to get the best lease terms. In my opinion, the bonus is irrelevant to getting a no post production costs lease. I would rather have a zero bonus 1/4th pooling than a bad lease. The owner is not likely to draft a “fair” mineral owner lease. Most draft leases are highly favored toward the operator. I have read Mewbourne leases in that area. They were not in the mineral owner’s favor and needed quite a bit of editing by a good oil and gas attorney.
3. There are about 20 important leases clauses and unless you already have a good attorney looking at the leases, the time is very short.
4. The pooling order will state whether that is an option. Participating as a Working Interest owner is not for the novice. You would need a good attorney, good CPA, very deep pockets for the next few decades, insurance, setting up an LLC, etc. Works for some, not for others.
5. If there are a lot of landmen scrambling, then they are pretty sure the success rate will be high. Their clients have already done #4.
If theres not a rig on site or a mile away and you only have a week left, the pooling order is going to expire and they will need to file a new one restarting the clock for another year. Pooling orders expire all the time, Im guessing you own less than 5 acres and why the interest has gained attention bc small non ops that dont flip leases can get a lease hoping that a new pooling order comes and a well is actually drilled. Lets say you own 5 acres, in a 640 acre unit with $12million in completed well drilling costs, youre looking at paying $93,750 to participate
Clarify if you have one week in which to answer a pooling order or if you have an old pooling order that has not been drilled in the time frame that was listed about a year ago. Important difference!
If you are talking about CD 2024-003296 for 9-15N-20W, then this is a new order and Mewbourne has a year in which to spud the proposed well.
The Working interest payments would be not only for the drilling and completion but also for the field costs for the life of the well and the plugging costs, so those payments can affect your heirs for many decades.
I have not seen a draft operator lease that is favorable to mineral owners. The draft operator leases are in the operator’s favor since their attorney’s draw them up.
Ask them for the standard producers 88 paid up oil and gas lease with a depth clause, 1 year shut in royalty clause for oil and gas and no deductions clause. You need to get this done quickly though, like today or tomorrow as it sounds like you only have 2-3 days before you miss the elections deadline
There is no such thing as a “standard” producers 88 form. Various operators will change the language depending upon their needs. Do not trust the title at the top of the page. (Folklore has it that the 88 was a printing ticket back in the day for a particular company form). I have seen a variety of internal changes on a form with a Producers 88 title.
Nothing wrong with taking a pooling with a high royalty on this set of acres. Be sure and send it certified.
Not sure what you mean by “Folklore has it that the 88 was a printing ticket back in the day for a particular company form”? The AAPL created the "standard paid up 88 Oil and Gas Lease in the 1950’s or 1960’s. What kind of changes have you seen and are they prevelant? If one adds an exhibit with a depth clause, 1 year shut in royalty clause for oil and gas and no deductions clause, Im struggling to see how the combo could be bad for the mineral owner?
But, then you say there is nothing wrong with taking the pooling. But above you stated that operators change the language thats detrimental to the mineral owner, under the pooling terms, wouldnt the owner then be assigned/stuck with the operators oil and gas lease and not able to modify it and add clauses like depth, shut in and no deductions clauses? Im very confused by your take on this one, maybe Im reading it wrong or missing something, but would love the clarification as maybe Ive just been looking at wrong the last 45 years.
I have heard multiple attorneys in OK state that there is no standard OK Producers 88. There may have been an original one, but I have seen many different versions with different language in the body over the last many years. The story is that one particular operator had a lease form that they took to a printer to have blanks made. The printing ticket was #88 somewhat like a ticket at an ice cream store.
My problem with the draft leases that I usually see is that they have clauses that are detrimental to the mineral owner (such as the lack of timing on shut in, the addition of language that adds in post production charges, warranty clause, free use of oil and gas and water, options to extend, top lease clauses, etc.) and are missing clauses that will protect the mineral owner (such as higher shut in payments with time limits, no warranty, no free use of oil and gas and water., depth clause, commencement of drilling, audit privileges, no option to extend, no top lease clause, etc.) With good negotiation many of those items can be worked out.
In OK, the pooling order is the binding document and is bound by the statutes that govern them, not the operator’s lease. The pooling document is limited by the reservoirs listed in it, has a shorter time frame, is bound by the Mittelstaedt requirements, etc.
TX and other states poolings may have their own set of guidelines.
@Bob77 you and @M_Barnes may seem to be at conflict on the 88 issue, but I see it as you are both providing solid advice. People (Lessees) have re-created OGL’s with the Producer 88 for many years that did not meet the form standards of the form. Some would consider this a deceptive practice and I would be in that camp. So @M_Barnes is correct to offer a caution. Your method of adding an exhibit/addendum is a negotiation method that is valid if you are unable to have your preferred OGL form accepted. When it comes to leasing to an operator or making a pooling election, that needs to be an informed call based on risk/financial mitigation. I can make a strong argument for either side of that decision when for properties in OK. Good posts by both of you.
Thanks for the reply. I guess my whole point was, if a lessor gets a 1 1/2 pg “typical lease” and they add the depth clause, 1 year shut in on oil and gas clause and no deductions clause, I think they will be fine and any owner can negotiate these terms by themselves without paying someone else to do it. Maybe Im wrong, wouldnt be the first nor last time that happens!