We recently received a letter from a landman offering to lease our mineral acres in section 3-19N-3E in Payne County. The letter mentions that Devon is planning to force pool very soon and there is already work being done where the horizontal well will be constructed.
I am wondering if there's any advantage to signing a lease now or waiting to be force pooled.
I also wonder, if given the choice, is it better to go with higher royalty and less bonus or vice versa.
Thanks - I've learned so much from reading this forum already!
Good Morning, Dana. I feel it is best to lease right before being force pooled, which sounds like right now for your situation. When you are force pooled, the bonus $ is an average of what they have paid during the entire leasing period, which in many cases, the mineral owner can lose out on some bonus $. Also, if you are force pooled, you cannot negotiate anything in the lease or clauses/provisions.
Who is offering to lease your 10.5 net acres? I feel that you should be able to get more $ for 3/16th royalty. I know a few companies that are offering more. Let me know if you need contact info. Good luck!
Thanks Robert, the offer came from Blue Star Land Services. I looked on the OCC website and found that Devon applied for the drilling and spacing unit on Dec. 11th. I'd be very grateful for contact info. What sort of lease clauses and provisions should I be asking for?
Higher royalty and less bonus $ really depends on the person's situation. With smaller holdings, less than 1 acre, I think the higher royalty % always makes sense. You have a decent amount of acreage with 10.5 net mineral acres and 3/16ths is a fair percentage with some decent bonus $ upfront. It really all depends on personal preference. Some people like the $ upfront. Others choose the higher royalty % and prefer to be paid on the future production, always depending on if it is a successful well.
Every pooling I looked at in 19n-3e & 20n -3e ordered them to pay more then 200 for 3/16 . It is very important that you don't let them deduct post production or marketing expenses . Get a time limit on shut in clause . Do not give an option to extend the lease . The depth clause as Robert said . The pooling is nothing to fear . It is only for a year or less not for 3 like most leases . You can take more then one option with your interest . You don't have the same concerns about lease clauses and provisions that are in a lease in a pooling .
Thanks, Ron and Robert, I'll ask about those changes to the lease. The sample I saw so far does deduct a ton of stuff from the royalties. I also asked about increasing the bonus or royalty and was told they can't do it "at this time." I hope they will eventually. I have a couple more questions:
Are there any clauses I should ask for that could help protect our surface rights?
And, if we do get force pooled, do we have any choice on the various clauses? Is it better to try to get a lease before the force pooling order or is it better to wait? (pros/cons?)
I've gotten a deductions limiting clause, a shut-in limit of 2 years, and a depth clause (though the wording is iffy.)
I also asked about not having to warranty the title, but that was declined. If that's not acceptable, I will have to fall under the terms of the pooling. I hope to find out the terms of the pooling.
Thanks for the info so far. I am noticing that the clauses the landmen add to appease me (no deductions, depth clause, no warranty of title) are worded so confusingly that I feel like I'm being tricked. E.g. the No deductions clause says that they will deduct "market enhancements"... So, I either have to get a lawyer or just wait and be force pooled. I can't in good conscience sign something in such fuzzy language.
Is there an example of what the terms of the force pooling have been? Do they deduct for market enhancements from the royalties? Does one have to warranty the title? How does it work exactly? The pooling orders themselves don't reveal much.
Is it worth hiring a lawyer when I only have 10.5 net mineral acres? I could end up spending more on a lawyer than I make back in bonus/royalties.
The only clause you will be able to have when being force pooled is a depth clause. Many times the bonus $ and royalty options are not as favorable as those wanting to lease your minerals. I found that if you are able to strike the warranty language in the lease and then get all of the clauses: depth, 2 yr shut-in, gross proceeds or no deductions, and a pugh clause, that these are fair terms. In fact, this is what my brother, an oil/gas attorney has told me to do and has approved lease forms with all of these.
Hi Robert. On the gross proceeds clause, I've read that the lessee is getting around that with a "market enhancements" words. Do you agree? Should I asked to have that part removed, here's the clause that I have been offered, with the troubling part underlined:
Gross Proceeds: It is agreed between the Lessor and Lessee that, notwithstanding any language herein to the contrary, all oil, gas or other proceeds accruing to the Lessor under this lease or by state law shall be without deduction, for the cost of producing, gathering, storing, separating, treating, dehydrating, compressing, processing, transporting, and marketing the oil, gas and other products produced hereunder to transform the product into marketable form; however, Lessor’s share of any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from Lessor’s share of production so long as they are based on Lessee’s actual cost of such enhancements. However, in no event shall Lessor receive a price that is less than, or more than, the price received by Lessee.
I have seen many attorneys approved the above language or similar:
NO DEDUCTIONS: IT IS AGREED BETWEEN THE LESSOR AND LESSEE THAT, NOTWITHSTANDING ANY LANGUAGE HEREIN TO THE CONTRARY, ALL OIL, GAS OR OTHER PROCEEDS ACCRUING TO THE LESSOR UNDER THIS LEASE OR BY STATE LAW SHALL BE WITHOUT DEDUCTION, FOR THE COST OF PRODUCING, GATHERING, STORING, SEPARATING, TREATING, DEHYDRATING, COMPRESSING, PROCESSING, TRANSPORTING, AND MARKETING THE OIL, GAS AND OTHER PRODUCTS PRODUCED HEREUNDER TO TRANSFORM THE PRODUCT INTO MARKETABLE FORM; HOWEVER, LESSOR’S SHARE OF ANY SUCH COSTS WHICH RESULT IN ENHANCING THE VALUE OF THE MARKETABLE OIL, GAS OR OTHER PRODUCTS TO RECEIVE A BETTER PRICE MAY BE DEDUCTED FROM LESSOR’S SHARE OF PRODUCTION SO LONG AS THEY ARE BASED ON LESSEE’S ACTUAL COST OF SUCH ENHANCEMENTS. HOWEVER, IN NO EVENT SHALL LESSOR RECEIVE A PRICE THAT IS LESS THAN, OR MORE THAN, THE PRICE RECEIVED BY LESSEE.
This allows the mineral owner and the oil company to receive the highest price when the oil or gas is sold at market.
I have also seen this gross proceeds/no deductions language:
Lessor's retained royalty fraction shall be paid free and clear of costs of producing, gathering, transporting, treating, compressing and processing, provided however that transportation costs which are incurred off the lease (or drilling and spacing unit should one exist) which result in enhancing the value of any already marketable product may be proportionately deducted from Lessor's share of production. However, any such costs which result in enhancing the value of the marketable oil, gas or other products to receive a better price may be deducted from the gross value of which Lessor’s royalty share is calculated as provided under the guidelines established in Mittelstaedt V Santa Fe Minerals, Inc., 954 P 2d 1203 (Okla 1998). If deductions are taken for any of the post production costs set forth above, Lessor may request an explanation of how such costs have enhanced value.