Family has owned rights on two sections in Stephens County OK for years.
Over the years,we’ve had previous Leases (2) with intermittent offers to Buy (all refused) holding our for another fair Lease.
The Sections in Stephens County are Sec 5-3S-4W; and Sec 32-2S-4W
Recently Bearcat (a company we’ve pleasantly and fairly dealt with previously) ccontacted us with three Lease options (with a “Deadline”) of March 13th.
Option 1: Lease Term of 3 Years with a 2 year Option; at one-eighth Royalty (1/8) and a Lease Bonus of $702 per mineral acre.
Option 2: A Lease Term of 3 years with a 2 year Option; at 3/16th royalty; and a Lease Bonus of $502 per Mineral Acre;
Option 3: Lease Term of 3 Years with a 2 year option; at one-fifth (1/5) Royalty; and a Lease Bonus of $402 per mineral acre.
Is anyone aware of other companies than Bearcat “suddenly” anxious to negotiate Leases (not purchases) in Stephens County, Oklahoma? We’d like to get other Lease Offers to consider but don’t want to overthink this to the point of nothing being finalized in the fairly near future.
Thanks for any thoughts on our pending Offer from Bearcat. If more details are needed, please let me know. You folks have been invaluable over the years. Everyone be safe.
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Given that Continental has permits for horizontal wells just to the east of you to drill horizontal wells in 2,3,10 and 11 from SE to NW, I suspect they may be the future operator. BearCat frequently leases for them. Personally, I do not go for an option as that makes the time frame too long and gives too much power to the lessee. I prefer the highest royalty offered. Balco Energy has been leasing in section 5-they pooled for the W2 NE4 for the Viola in 2024. I suspect others will pop in closer to drilling for the rest of the acreage.
It would be wise to get an attorney to review the draft lease as they are rarely in a mineral owner’s favor and need significant edits. You may also choose to wait for pooling, should it happen.
Why are they drilling SE to NW? Is the formation contoured or is there a fault. Most of the surrounding wells are N-S.
They are trying to hit the structural grain of the reservoir at the optimum angle to the well bore so the fractures drain the best. They probably learned something from the early wells that made them switch direction. CLR has quite a few permits/wells trending that direction nearby.
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That makes sense. We are in S2 and the discovery well (Gentry) survey showed wide variation in vertical depth across the section.
Ms. Barnes I thought I had thanked you for your constant informed help to me and others over the years but I do not see my previous Reply. So let me try again…thank you so much very appreciated. Several very helpful tips as I prepare for negotiations with Bearcat. If you get a chance, can you give a novice like me a dumbed down primer on advantages/disadvantages of letting Deadline pass and waiting for “pooling”. Thanks again, be safe.
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In OK, all minerals rights must be accounted for before drilling. For the mineral owners who cannot be found, are deceased, refuse to lease, lease close to expiring and fell through the cracks, etc., the Oklahoma Corporation Commission has a forced pooling procedure to handle those acres.
The operators will file with the OCC and mail outs will be sent to the last known address for each owner of record. A hearing on the merits of the case will be held and the judge will send out an order with royalty/bonus options for the remaining owners to choose from. They are supposed to be the highest amounts offered by the operator in the current section and the surrounding eight sections over the last year. Usually, there are two to five bonus/royalty pairs. I prefer the highest royalty most of the time. The bonus is minimal in comparison to the royalties on one or more wells over the life a production.
The mineral owner has 20 calendar days in which to answer or they will be assigned the lowest royalty and its bonus. If they cannot be found, the bonus money will be held for them in a special account at the operator’s. Pooling orders are usually for a spud date within six months to 18 months. A year is common. If no spud, they can be renewed. Poolings have their own statutes and in some cases can be favorable over a bad lease from an operator. Some leasing agents use “forced pooling” as an implied threat. I do not take it that way, but more as an opportunity. I prefer to have a rock solid mineral-owner-friendly lease, but some operators will not budge on their operator-favored language. In those cases, I will happily go to pooling.
The slight risk is that an operator will decide not to drill and not go to pooling, but that depends upon the area and the level of activity.
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Update. Initial Negotiations with Bearcat Regarding Sec 5-3S-4W and Sec 32-2S-4W.
Offer Being Considered: Lease Term of 3 Years with a 2 Year Option; at 1/5 Royalty; Lease Bonus of $402 per Mineral Acre.
Using guidance from this great Board (primarily from Ms. Barnes) the issues were discussed with Ms. Phillips of Bearcat.
She IMMEDIATELY said they will drop the need for a 2 year option; she said they are not offering 1/4 (25%) Royalty at this time(“only” 1/5th); she said Lease Bonus of $402 per Mineral Acre “cannot/will not” be increased per my request; and (most troubling) the so-called Gross Proceeds Clause of Exhibit A which Ms. Barnes has pointed out the second paragraph of that Clause clearly shows future Deductions might in fact be made under described circumstances–Ms. Phillips who said no one had ever raised that issue before with her-- she came back and said no changes would be made by Bearcat to that Clause of Exhibit A by Bearcat despite the obvious inconsistency. As it reads now, it clearly is NOT a "Gross Proceeds/No Deductions Clause of Exhibit A.
I told Ms. Phillips I was disappointed, concerned and confused and would get back to her.
Question 1: Based on the Give and Take described above, should Bearcat’s refusal (so far) to clean up the “Gross Proceeds” Clause of Exhibit A and to not increase the $402 Lease Bonus a deal breaker in light of their dropping the Option Period and the apparently reasonable 1/5 Royalty a deal breaker from my family’s end?
Question 2: Are other companies than Bearcat currently (or expected to) make Lease Offers (we have no interest in Selling) for the 2 Sections of Stephens County involved?
Question 3: Would it be unduly risky to wait until Bearcat pulls this Offer and await the possible “crapshoot” that possible Forced Pooling might come into play? We are not in any present need to execute this Lease but would do so if the issues on which Bearcat will not budge are essentially not significant overall.
Massive thanks in advance for any feedback.
My opinion only-others may differ.
Q1-refusal to budge on a Gross proceeds list is usually a deal breaker for me. I would either want a Mitttelstaedt provision or gladly go to pooling.
Q2-Yes, there are other agents leasing in the area. The closer they get to drilling, the more likely that third party agents will start offering leases. (No guarantee of course)
Q3-Forced pooling is highly defined by statute. All acreage must be accounted for before drilling. Either leased or pooled. If the operator decides not to drill, then they will not pool. No crystal ball on that. I wouldn’t put it in the “highly risky” they won’t drill category, but I do not have inside knowledge either. If the current wells just to the east are good, your likelihood of drilling goes up and vice versa.
I will certainly understand if Ms. Barnes (and others) have already devoted enough time to assisting my family–and the assistance has been invaluable–regarding the pending Offer from Bearcat.
The initial offer Regarding Sec 5-3S-4W and Sec 32-2S-4W. being Considered: Lease Term of 3 Years with a 2 Year Option; at 1/5 Royalty; Lease Bonus of $402 per Mineral Acre.
Negotiations to Date have them slightly increasing the Bonus (to $502), and dropping the requirement for an option of any kind. They said they will not offer a 25% (1/4) Royalty and are refusing to budge on the last clause of the Second Paragraph of the badly misnomered “Gross Proceeds/No Deduction” Clause of Exhibit A.
The sticking point language of the second paragraph of this Exhibit A Clause is:“however, processing and transportation downstream of the tailgate of a processing plant shall be deductible for all purposes, and in no event shall Lessor receive a price greater than the price received by Lessee”.
Questions: despite my efforts to get details from the Bearcat Landman (a woman actually tho she said she is inexperienced) am I overthinking this? Are the potential deductions likely to be a few hundred dollars, or many thousands of dollars? What if they exceed the amount/value of the 1/5 (20%) Royalty? Will the family be on the hook for any excess which, as mentioned, is of a completely unknown and speculative (to us) dimension/amount?
Bearcat is mailing us the two Leases but they have been notified that I reserve the right to do further Due Diligence about the troublesome language in the second paragraph of the “Gross Proceeds Clause” of Exhibit A.
Thanks and all of you be safe.
“downstream of the tailgate” and “shall be deductible for all purposes” are huge red flags. That is opening you up to all sorts of charges.
Oklahoma is an “implied covenant to market” state which means that the operator is supposed to get your products to market WITHOUT charging you. Unless they can convince you to put the charging terminology in the lease-which is what they are trying to doing here. They may be selling to one of their own subsidiaries and trying to make you pay the extra charges.
Those post production charges can be very large, especially if they are dealing with gas. And the charges increase over time. If you have two acres, then maybe in the lower range. If you have larger acreage, then the charges will be more. In some states, I have heard of charges that are over 100%. Haven’t seen that high in OK yet.
Your choice is to get a good attorney to look over the lease and add in the correction language to prevent post production charges or if the operator will not accept that language then go to another leasing agent who will. Or go to force pooling which is just fine in these cases.
Ms. Barnes you are beyond awesome and this is not a recent observation of mine (you have helped us at least 2X with previous Leases in Stephens County OK). While awaiting arrival of the Leases to be signed if acceptable–highly unlikely now–I plan to call Recon Resources and Gulfport Energy to at least see what they have to say. Very unlikely we will consider what Bearcat has proposed.
Were they possibly just trying to be the “first to us” in anticipation of possible future exploration etc. on our Sections with possible other Lease offers from other companies on far more favorable Terms? Just wondering. Be well have a great weekend.