A Well Proposal In Oklahoma - A Boon to the Mailman

Oklahoma Oil and Gas Mineral Owners,

Berlin's friend Bruce called her up on Friday, and after he finished ranting about planting his tomatoes before the last frost date, he got down to asking about well proposals and why he is receiving them in the mail for his Pittsburg County, Oklahoma mineral rights.

Unless one is party to a Joint Operating Agreement, a well proposal in Oklahoma is a non-binding piece of correspondence. It is supposed to be the last of a series of efforts for all owners with the right to drill a well in a certain drilling and spacing unit to agree to drill (or not to drill) that well before a forced pooling proceeding is undertaken at the Oklahoma Corporation Commission. 

A well proposal will usually contain the following pieces of information;

1. The proposing party (and potential operator)
2. The location of the well (usually described to a quarter section level)
3. The target formation
4. The type of well (horizontal or vertical)
5. The depth of the well
6. The cost of the well (an AFE should be included)
7. The proposed farmout/lease terms in lieu of participation in the well

Ever since our friends at Chesapeake popularized not sending out a JOA even between parties who have agreed to the development of a unit, a well proposal should be viewed as a warning order that a forced pooling application will arrive in a few weeks.

Dr. Evil prefers that one forgets that elections under a pre-pooling well proposal are non-binding so he can deem Austin out of the well.

There is little room for negotiation in the terms of the well proposal. If an owner desires not to participate and would prefer to lease/farmout and doesn't like the terms presented in the proposal, the proposing party will say something like, "well, you had your chance hot shot, but now you'll just have to see what we testify to at the pooling hearing." The power of the forced pooling provisions gives her the ability to (1) call anyone she wants "hot shot," and (2) not care about responding to counter-proposals from other owners in the unit. Berlin has been told that is not the case in other states (property rights, who needs property rights?).

If an owner does want to participate in the well, he will still have to elect to do some when the forced pooling order issues. Despite the fact this is usually written into the well proposal, many parties still fail to elect under the order and the operator is more than happy to overlook their previously designated intent and deem them out of the well.

After Berlin explained these facts to Bruce, he asked the only questions that a reasonable person would ask after hearing about how worthless a pre-pooling Oklahoma well proposal is, "what's the point and who benefits?" Berlin isn't sure what the point of the well proposal is, they are often ambiguous and as stated above, non-binding. The beneficiaries are certainly the USPS who really enjoy when letters are sent certified at $7.00/piece and the potential operator's competition who get a 2-3 week notice that applications are about to be filed.  

Please comment below or contact Berlin with any more questions about well proposals or if you would like to sell your Oklahoma mineral rights.

More to follow,

Berlin