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.