I received an offer for a working interest and sharing costs or a 3/16,1/8, or 1/5 royalty. How does one decide on how to choose? This is new to us since it is an inheritance? It is in 6N-7E and 2 1/2acres.
Jeff,
If you received notice that you were pooled this info might be too late; if you do not make a timely election you are deemed to have elected the 1/8th option. If you received letter from oil company then you do not have to make any election (they may eventually pool the section); you may even negotiate with the company. See below regarding 1/4 royalty.
There have recent filings with the Oklahoma Corporation Commission laying the groundwork to drill several horizontal wells in the southern half of 6N-7E. The completed well cost was estimated to be just under $4,000,000. Your share, 0.39%, to participate as a working interest owner would be approximately $15,000. You would also be liable for your share of any cost overruns. You will also pay your share of monthly operating costs. I am not familiar with the company that filed the applications.
The decimal royalty for the options above are: 1/8 = .125, 3/16 = .1875 and 1/5 = .2
If you participate with WI you will receive 0.39% of revenues if you lease then multiply 0.39% by the factor above depending on the royalty interest chosen.
Everyone's situation is different but with your small holdings and the chance for multiple wells you are not giving up much cash to take the largest royalty especially if you can get 1/4 royalty. There is also some sense in taking the 3/16th option if you cannot get the 1/4 since you end up with some cash and the royalty difference between 3/16 and 1/5 is not real great.