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

Four Key Pieces of Correspondence for the Oklahoma Mineral Owner

(This post originally appeared on www.oklahomaminerals.com on November 8,2016)

All,

Landmen are no busier than most professionals during the work day, but it is often stated that company landmen never return the calls of mineral owners. While this might be true of the bottom 10% of the profession, most landmen know that by placing a single call to a mineral owner, he could spend 30 minutes explaining knowledge that could easily be obtained throughsimple internet research. An informed mineral owner, who asks a poignant question, is much more likely to receive the answer he needs than the owner who calls to ask the difference between a spacing application and a well proposal.

Admittedly, if one owns a single tract of minerals or maybe just inherited the minerals, then the inaugural process of leasing and receiving the regulatory paperwork while the company is assembling the drilling and spacing unit would surely baffle most.

In general, there are four key pieces of correspondence that an Oklahoma mineral owner will receive from the landman. These occasions are detailed in brief below.

The Offer to Lease

Often, the first time an Oklahoma mineral owner will be contacted by a landman is when the landman’s company is assembling a prospect. The mineral owner will be contacted by phone and/or mail with an offer to lease their mineral interest. Most landmen will offer at least two options which will differ in the amount of cash bonus per net mineral acre and the royalty.

The Well Proposal

After the landman has made a bona fide effort to reach an agreement with all owners who own the right to drill a well in the proposed unit, he will send a well proposal to the parties with whom he has not yet reached an agreement. The well proposal will offer final terms in lieu of participation in the well and details of the well to be drilled such as location, proposed depth, target formation, estimated depth and cost of the well in the event the party would like to participate. It is important to note that in Oklahoma, an election to participate in the well is not binding until the party elects under the pooling order.

Oklahoma Corporation Commission Applications

Initially one of the most confusing aspects of being an Oklahoma mineral owner is the receipt of Oklahoma Corporation Commission (“OCC”) applications and orders. Some owners ask why they are being sued and others ask to be removed from the mailing list. Owners receive the applications and orders because Operators and applicants are required by law to provide notice of their activities to the owners who their activity affects. These applications are orders are mailed from an attorney who represents the applicant in OCC matters. The three most common applications that an owner will receive are the spacing application, location exception application, and pooling application. These applications will be discussed in detail at a later date, but the pooling application will be the application that will have the largest effect on the mineral owner’s rights and pocketbook. The OCC publishes a handbook for mineral owners that can be found http://www.occeweb.com/og/PubAsst/WebRoyaltyOwnersHandbook3-2015.pdf

The Division Order

If an operator successfully drills and completes a well, the next correspondence the mineral owner will receive from the company is the division order. A division order is an instrument which sets forth the proportional ownership in the produced hydrocarbons. The proportional ownership is communicated to the owner on the instrument in a decimal form. After the division order is signed and curative title issues are completed, the mineral owner should receive their first check within six months from the date of first production from the well.

In conclusion, the four key pieces of correspondence that an Oklahoma mineral owner will receive from the landman and the company, are the offer to lease, the well proposal, Oklahoma Corporation Commission applications and orders and finally, the division order. All four of these topics will be expanded upon in future articles. If there are any other topics you would like to discuss, please mention your ideas in the comment section.

More to follow,

Berlin