On 11 December 2018, Riviera Resources, Inc. (“Riviera”) announced that it signed a definitive agreement to sell its interests in properties located in the Arkoma Basin in Oklahoma to an undisclosed buyer for a contract price of $68 million…
Occupational licensing in the United States is on the rise. It has been estimated that up to 25% of jobs now require a license. There are a number of reasons why occupational licensing is detrimental to economic growth. Licensing requirements protect incumbents by preventing new entrants in the industry through the cost to acquire and maintain a license and discourages movement from areas of lower opportunity to high opportunity as requirements are often state-specific and do not transfer easily to new jurisdictions. Now landmen may be required to become licensed…
As yall are well aware, Berlin's finance (that's "fuhnance") prowess is on par with her triple lutz, triple toe, which is non-existent. That being said, Berlin does know that as an stockholder one has claim to the future profits of the firm...
Bruce was a bit pissed when he called up Berlin today. Apparently, his fence line weaning efforts cost him about 6 hours of sleep after he found the fence knocked down and the calves back with their mommas. After he calmed down a bit, he asked why so many operators are spudding their wells before a forced pooling order has issued and what his options are as an unleased Oklahoma oil and gas mineral owner named as a respondent in the pooling proceedings...
Oklahoma Royalty Owners,
Tyler Cowen recently posted about the five smallest industries by firm size.
Fishing, hunting, trapping: 3.1 workers on average
Building construction: 5.5 workers on average
Real estate: 5.9 workers on average
Funds, trusts, and other financial vehicles: 6 workers on average
Repair and maintenance: 6.1 workers on average
While Berlin doesn't have access to the base data, your author would hazard a guess that most buyers of Oklahoma oil and gas mineral rights are also smaller firms. Most companies who buy Oklahoma royalties are one-two person operations with a couple contractors on call to assist with title due diligence. If you are interested in selling your mineral rights and royalties, please call Berlin at 918.984.1645 to receive an offer today.
More to follow,
Oklahoma Mineral Owners,
Have you ever tried to contact a company landman or lease buyer and never hear back from them? Of course, your answer is "yes." I recommend you email them the following..."have you given up on this <project/lease/trade?" This phrase triggers an immediate reaction in the recipient. Research has shown that loss aversion drives action more than the desire for gain. Or, call Berlin at 918.984.1645 if you would like to sell your oil and gas minerals. We will always answer and listen to your initial offer. What other negotiation tactics have you found to be the most useful?
More to follow,
Oklahoma Oil and Gas Mineral Owners,
The Arkoma Basin has been playing second fiddle to the STACK for some time now, but the sleeping gas giant appears to be rubbing the sleep from its eyes. Leasing and transaction activity is accelerating in Coal County, Oklahoma. In the last twelve months, there have been 1739 oil and gas leases filed of record in Coalgate by numerous operators and brokers
There have been five companies in the past year who have been granted Pooling Orders in Coal County by the Oklahoma Corporation Commission. For this discussion, Pooling Orders will be our metric to measure presence and activity level in Coal County. The Companies and the number of Pooling Orders issued are detailed on the chart below.
||Number of Pooling Orders
|Bravo Arkoma, LLC
|Canyon Creek Energy Operating, LLC
|Pablo Energy, LLC
|Newfield Exploration Mid-Continent, Inc.
|BP America Production Company
The chart deserves a bit more analysis. With its enormous legacy position from the Amoco days, it is not surprising to see some activity from BP. With a market capitalization of $100b, I’m not sure what moves the needle for BP, but I don’t think it is a Hunton/Sylvan test in Coal County. Bravo and Canyon Creek are the two operators to watch. With Pooling Orders covering from the Hartshorne to the Arbuckle, it will be interesting to observe how their positions develop. It appears from the 1002As that have been filed, Bravo is exploiting the Woodford while Canyon Creek is exploiting the Cromwell and Woodford.
Title is just nasty in the Arkoma and Coal County is no exception. Minerals tracts can be cut 100 ways. The only consolation is that most of the historical production has been spaced on 640 acres which does make the held-by-production title work a bit easier in contrast to the Golden Trend. Remember to contact Berlin, if you are wanting to buy mineral rights or sell mineral rights in Oklahoma, specifically Coal County. Standby for further reporting on developments in the Arkoma.
More to follow,
Oklahoma Mineral Rights Owners,
Most oil and gas leases contain what is commonly known as a shut-in royalty clause. The clause developed over the years to mitigate the harshness of the automatic termination rule. Under the automatic termination rule, an oil and gas lease will generally terminate any time after expiration of the primary term unless there is a well on the leased premises producing gas “in paying quantities.” This rule, in a majority of jurisdictions, requires actual production and marketing of natural gas. Unlike oil, natural gas cannot be produced and then stored or transported in railroad cars or tank trucks – post-production facilities such as pipelines, compressors and dehydrators are generally required to process and deliver the gas to market. In such circumstances where a gas well has been completed, but no market exists for the gas, the shut-in clause enables a lessee to keep the non-producing lease in force by the payment of the shut-in royalty. Such payment serves as “constructive production” and avoids application of the automatic termination rule.
A standard shut in royalty is usually a nominal $1.00 per acre per year. If there are no additional provisions to address the shut in, then the operator can hold the lease if he continues to pay the shut in royalty. When negotiating the oil and gas lease, the lessor should ask for a provision such as the following:
"After the end of the primary term, this lease may not be maintained in force solely by reason of the shut in royalty payments, as provided heretofore, for any one shut in period of more than three (3) years, or from time to time, for shorter periods which exceed three (3) cumulative years."
Any questions regarding shut in royalty payments for the Oklahoma Oil and Gas lessor? More to follow.
Oklahoma Mineral Rights Owners,
One of the most common provisions an oil company landman will try to negotiate is an option for the oil company to extend the primary term of the lease. For most oil and gas leases in Oklahoma, the primary term of the lease is three years. The landman will ask for an option to extend the primary term of the lease for two years. This oil and gas lease is sometimes referred to as a 3 + 2 lease.
While a 3 + 2 oil and gas lease is more favorable to the Oklahoma mineral rights owner than a oil and gas lease with a 5 year primary term, it is still worth the mineral owner's time to try to negotiate it out of the oil and gas lease and here's why:
- If the area turns into the next SCOOP (South Central Oklahoma Oil Province...thanks Harold Hamm...) then the bonus amounts per acre will increase substantially and the Oklahoma mineral rights owner will most likely be locked into a reduced bonus amount that was negotiated several years prior.
- If the area turns out to be a bust (think Mississippi Lime...) then the oil company would let the option expire and if they were going to re-lease, would negotiate a lower bonus amount. This leaves the Oklahoma mineral rights owner in no better shape than if they didn't have an option.
If a landman won't strike the option, request that the option to extend be priced at 125%-150% of the current lease bonus. Most will hem and haw, but will usually concede that point.
More to follow.
Oklahoma Oil and Gas Mineral and Royaty Owners,
Pooling is the process of combining the interests of two or more tracts in the same spacing unit. The area is called a pool, or a unit. Pooling provides benefits to the operator by combining all owners’ interests in one common pool under one drilling and spacing unit and utilizing one or more common geological formations, commonly referred to as a “common sources of supply” by the Oklahoma Corporation Commission (“OCC”). The primary purpose of pooling is to develop and operate a given formation in order to recover the greatest amount of hydrocarbons that can reasonably be produced, prevent the drilling of unecessary wells, and also to achieve equity among the interest owners by permitting each owner to recover a fair share of hydrocarbons therefrom. There are several types of pooled units, but for today's discusssion only voluntary pooled units and forced pooled units will be discussed.
Owners wishing to propose a well must secure the commitment of other owners in the drilling and spacing unit. The proposing party, at minimum, should send a well proposal to all other owners in the unit. Most drilling and spacing units for horizontal wells comprise an area of 640 acres or one section. Since Oklahoma minerals rights are often bought and sold, this could mean that there are hundreds of owners in just one section. Closing a deal or even locating all the owners is very difficult. Therefore, the proposing party must file a pooling application through the OCC in order to “force” or secure commitment from all parties. This process is called forced pooling in Oklahoma.
The pooling application will provide notice to all of the unleased mineral owners or all lessees who will be listed as respondents on Exhibit “A” of the application. The pooling notice is mailed to all respondents having the right to drill and/or participate in the well. The notice sets a time and place for the upcoming hearing and allows any respondent to be present in order to protect his interest.
At the hearing, the landman who attempted to negotiate with all the owners in the unit, will testify under oath that proper notice was given to each of the respondents and also that a good faith effort was made to come to terms with each respondent listed on Exhibit “A”. Testimony by the landman will include the fair market value of the mineral interests in the section and the surrounding eight contiguous sections ("the nine spot"), as it relates to lease bonuses paid and royalties offered within the last year; and may include any competitive single section trades such as farmout agreements or term assignments made in the same area.
After the hearing, the judge will decide whether to issue a pooling order or not. If a pooling order is issued, the respondent(s) will have 20 days from the issuance of the order to make an election on the options provided. A pooling order typically provides for one of the following two options:
1. Participate in the well and pay the owners' proportionate share of costs.
2. Select one of the options presented by the landman. There will usually be two combinations of a cash bonus per net mineral acre (nma) and a royalty. For example, one could selected $200/nma and a 1/8th royalty or $100/nma and a 3/16th royalty.
It is important to note that an owner's selection will govern his unit rights for as long as that unit is producing. There should be provisions in the pooling order to govern subsequent wells. For example, if an owner elects not to partiticpate in the intial well and instead selects the 3/16th royalty, he will not have the option to participate in subsequent wells.
This process is beneficial to the operator as the OCC causes all undecided landowners to make elections pursuant to the pooling order. Oklahoma’s forced pooling process benefits operators, working interest partners and mineral interest owners. It stimulates a competitive market for development of oil and gas, which results in revenues for investors and royalty owners.
There is no minimum ownership percentage to file to pool a section. Even an owner with a small stake in the unit can apply to pool the other owners to force the drilling of the well. This is important because it can push legacy operators out of the way who are not wanting to spend the capital to develop the newly found horizontal horizons.
Most poolings are in force for a year and if the initial well is not spud within this time frame than the order will expire as to the formations that were pooled.
Any questions? More to follow.
Oklahoma Oil and Gas Mineral Owners AND Surface Owners,
What is the Oklahoma Surface Damage Act? The Surface Damage Act requires oil companies to negotiate in good faith with landowners to determine and pay for the amount of damage that will occur to property as a result of oil and gas operations. The damages considered are listed below. If these negotiations are not successful, the Surface Damage Act provides a procedure for determining those damages by an appraisal and if necessary, by jury trial.
The Surface Damage Act applies to the operator and the surface owner (not lessee) of the property where oil and gas operations will occur. The Act does not apply to damages caused by the exploration for oil and gas using seismic instruments. The amount of damages to be paid is the difference in the fair market value of the entire tract of property before the oil and gas operations on the property, and the fair market value of the entire tract of property after the oil and gas operations are completed.
The Oklahoma Supreme Court has noted that the following items are some of the factors that may be considered in calculating the damages:
- The location or site of the drilling operations.
- The quality and value of the land used or disturbed by said drilling operations.
- Incidental features resulting from said drilling operations which may affect convenient use and further enjoyment.
- Inconvenience suffered in actual use of the land by the operator.
- Whether the damages, if any, are temporary or permanent in nature.
- Changes in physical condition of the tract.
- Irregularity of shape and reduction, or denial of access.
- The destruction, if any, of native grasses, and/or growing crops, if any, caused by drilling operations.
Before an operator enters the property, it must provide notice to the surface owner of its intent to drill. This notice must be sent by certified mail. The letter must include (1) the proposed location of the well, and (2) the approximate date that drilling operations are scheduled to start. Once this notice has been delivered, the operator has five days to start “good faith” negotiations with the surface owner. If the parties can agree to the amount of surface damages and write a damages contract, then the operator can enter the site and start drilling. Once this amount is paid, the Surface Damages Act has been fulfilled.
If the operator and surface owner cannot reach an agreement, a new procedure begins. First, the operator must file a bond with the Oklahoma Secretary of State. This bond is meant to ensure the payment of whatever damages may be determined. Second, the operator must file a petition in the district court for the county in which the proposed well will be located. This petition asks the court to appoint appraisers to determine the surface damages to the property. If an operator properly completes these steps, it can enter the property even without the permission of the surface owner; however, the operator cannot enter the property until these steps are satisfied.
If the operator asks the district court for the appointment of appraisers, the surface owner must be given notice of the petition within ten days. Once the surface owner has received his or her notice, the parties have 20 days to choose their appraisers. One appraiser is chosen by the surface owner, and one chosen by the operator. These two appraisers choose another appraiser, for a total of three.
Once the appraisers have been appointed and sworn in by the court, they have 30 days to inspect the property, confer to estimate the amount of damages, and submit a written report to the district court, which is then forwarded by the court to the surface owner and the operator. Once the report is filed, the surface owner and operator have three options from which to choose. First, if the parties agree to the appraised amount of damages, the damages can be paid to the surface owner by the operator, and the matter is closed. Second, either party can, within 30 days of the filing of the report, file an exception with the court stating the party believes the appraisal is inaccurate. If either party chooses this option, the court will review the appraisal and either confirm it, reject it, modify it, or ask for a new appraisal. Third, either party can, within 60 days of the filing of the report, demand a jury trial to determine the amount of damages.
It should be noted here that the oil and gas operations at the site in question may continue even if an exception or demand for jury trial is made, so long as the operator posts an amount equal to the appraised damages with the court clerk.
Any questions? More to follow.
Oklahoma Mineral Owners,
One of the very first questions that a mineral owner will be asked if he wants to sell his Oklahoma mineral rights or oil and gas royalties is the legal description of where the mineral rights are located.
Throughout the history of the United States there have been various ways of surveying public land. Oklahoma, just like most lands west of the Mississippi, was surveyed using the Public Land Survey System or PLSS for short. It is a way of subdividing and describing land.
The PLSS typically divides land into six mile squares called Townships. Townships are further subdivided into one mile squares called Sections. Sections can be further subdivided in various divisions such as into quarter sections or quarter-quarter sections.
The PLSS actually consists of a series of separate surveys. Surveys begin at an initial point and then the townships are surveyed from that point. The North-South line that runs through that point is called the Principal Meridian and the East-West line that runs through the point is called the base line.
Each township is identified with a township and range designation. Township designations indicated the location North or South of the Baseline and Range designations indicated the location East or West of the Principal Meridian. For example, Township 11 North, Range 8 West means that it is the 11th township North of the baseline and the 8th township West of the Principal Meridian. To identify a specific section in the township, one will call the section number before the township. For example, Section 1-Township 11 North-Range 8 West.
As one can see in the photo above, the sections begin With Section 1 in the North East corner for each township and run across and then down through Section 36. One will also notice, that Oklahoma has two Principal Meridians. The Indian Meridian currently lies 6 six miles west of Davis, Oklahoma. The Cimarron Meridian lies in Cimarron County, Oklahoma, just west of Felt. Only lands in the Oklahoma Panhandle were surveyed by the Cimarron Meridian.
More to follow.
Oklahoma Oil and Gas Royalty Owners,
The Anadarko Basin is a a geologic depositional and structural basin centered in the western part of Oklahoma and the Texas panhandle. The Basin underlies nearly 50,000 square miles and contains some of the most prolific natural gas fields in the country such as the Union City (Tigers) Field and the Elk City (Elks, obviously) Field.
Attached is an excellent presentation from the Oklahoma Geologic Society that explains the details.
More to follow.