The Future is Here - OpenAI Says to Sell Your Oklahoma Mineral Rights

All,

If you own mineral rights in Oklahoma, you may be considering whether or not to sell them. While it can be a tough decision, there are several reasons why selling your mineral rights can be a smart move.

First and foremost, selling your mineral rights can provide a significant financial windfall. The value of minerals, such as oil and natural gas, can fluctuate greatly, but if prices are high at the time of sale, you could stand to make a significant profit. In addition, selling your mineral rights allows you to receive a lump sum payment, rather than waiting for royalties from mineral production, which can take years to materialize.

Another reason to sell your mineral rights is the potential for reduced liability. If you own mineral rights, you are considered a working interest owner and are responsible for paying a portion of the costs associated with extracting and producing the minerals. By selling your mineral rights, you can eliminate this financial responsibility.

Additionally, selling your mineral rights can provide peace of mind. Owning mineral rights can be complicated and time-consuming, as you may need to keep track of production levels and royalty payments. By selling your mineral rights, you can free up your time and energy to focus on other priorities.

Overall, there are many compelling reasons to sell your mineral rights in Oklahoma. Whether you're looking to receive a significant financial payout, reduce your liability, or simply simplify your life, selling your mineral rights can be a smart decision.

More to follow,

Berlin

*pretty wild a robot wrote this!

Why are Churches Selling Their Minerals?

Oklahoma Mineral Owners,

Berlin is back (she hopes). After a long hiatus, it is time to shake off the cobwebs and start writing again.

The topic today is why churches and other non-profits are selling their mineral rights and royalties. First, it might be useful to understand how they acquired minerals in the first place.

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Why do Churches Own Oklahoma Minerals?

Mary Jane and Johnny must have been living in quite a bit of sin in order for daddy to bequeath the minerals to the church instead of his own kids. As Tolstoy probably said,

“happy families are all alike and keep their minerals; every unhappy family is unhappy in its down way .”

No matter the reason, it is now common for churches, synagogues, and other non-profits to own minerals through the generosity of their benefactors over the years.

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Why are Churches Selling Their Oklahoma Royalties?

As Berlin understands it, there are two main reasons that churches are selling their Oklahoma minerals.

1. ESG Initiatives: Churches have begun to sell their holdings in order to satisfy their constituents’ desires for the institution to be more “green.” Even Papa Frank has called for his folks to start selling their fossil fuel investments.

2. Bookkeeping Hassles: Mineral and royalty bookkeeping can be a bit of a challenge. Most families decide to sell their minerals because accounting and tracking them is a burden. Churches and other institutions sell their mineral rights for the same reason.

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Are you a Member of a Church that Would Like to Sell its Minerals?

Berlin has purchased the minerals and royalties of a number of different religious institutions over the past year. We have provided a lump sum to fund church operations and a quick closing. Please contact us if you would be interested in divesting of your Oklahoma mineral rights.

More to follow,

Berlin

Riviera Resources dice adios to the Arkoma

All,

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, subject to closing adjustments. For those who do not remember the sad saga of Linn Energy, Riviera = Linn Energy - the Linn Energy assets that were contributed to Roan Resources. Since there haven’t been many large trades in the Arkoma recently, Berlin thought it would be appropriate to analyze the metrics and valuations reported in the press release.

Snapshot of Berlin’s assumption of the operated wells under contract

Production

Riviera agreed to sell approximately 24 MMcf/day of net production. It was reported that this equated to proved developed reserves (PV-10) valued at $61 million. Berlin believes this might be slightly misstated as $61 million seems like a lot to pay for 24 MMcf/d, but if the bank who is loaning other people’s money to you says it okay to misconstrue the allocated value then it must be okay...maybe. It is Berlin’s estimate that these assets are generating ~$1.23 million / month (24,000 mcf / day * $2.86/mcf * .80 * .75 * 30 days).*

Land

If the production valuation is accurate, then Ms. Undisclosed Buyer will purchase 37,000 net acres for $7 million, a whopping sum of $189.19 / net acre. Assuming that it is all held by production (HBP), that might turn out to be quite the trade. Using data hastily queried from Oseberg’s Atla platform, the average one year pooling bonus delivering an .8125 NRI in Coal, Hughes, and Pittsburg counties in the past twelve months lies between $550 and $650 per net acre. While some of the Riviera acreage might be burdened below an .8125 NRI, it is most likely inclusive of more formations than the pooled acreage and it is HBP. Buying at ⅓ the price of your offset competition is usually a good thing and will enhance the opportunities to earn a multiple of your purchase price upon exit.

Operations

It is Berlin’s estimate that Riviera is selling 192 operated wells (174 horizontal (mostly woodfords), 18 vertical). The wells are predominantly located in Coal (94), Hughes (63), and Pittsburg counties (20). Since activity has cooled in the Arkoma and Riviera is not running a drilling rig in the prospect, Berlin reckons that Ms. Undisclosed Buyer will not immediately contract a rig to drill the already HBP’d acreage.

Potential Purchaser

At a $68 million purchase price, the universe for potential buyers is quite large. If there were more transactions in the Arkoma, it would make sense for one of the many private equity backed concerns to drag this asset along into a larger trade. However, since no large company has started to consolidate the PE shops and those PE shops seem to be settling down into their marathon paces, the PE shops should be excluded as a potential buyer. More than likely, the buyer is either a family company who already operates wells in the area such as Sanguine Gas Exploration, or one of the institutionally backed operating companies who seem to have a hurdle rate that barely clears the LIBOR; Scout Energy, Merit Energy, Foundation Energy fit this mold.

It will be worth the squeeze if Arkoma mania ever strikes again…and it will.

The Juice

If gas ever becomes the new oil (again) and companies (because Wall Street tells them to) start increasing their desire for gas reserves then this could prove to be a lucrative purchase for the buyer. She’s not paying a premium for the production and the acreage is coming over for the price of a couple sections of SCOOP acreage. It would be a home run if a big lease play sweeps through the basin à la 2007/2008 and she can exit for $2000 plus / acre .

If you have any additional comments or you would like to point out an error in Berlin’s math or reasoning, please drop a line below.

More to follow,

Berlin

*0.80 is the estimate of the NRI of the leases, and 0.75 is the estimate of the ratio of operating expenses to revenue. Berlin is not literate to the point where she can make footnotes in a blog post.

Occupational Licensing and the Landman. Are there rules?

All,

Occupational licensing in the United States is on the rise. It has been estimated that up to 25% of jobs now require a license.[1] 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.

Badges to purchase Oklahoma mineral rights? It could be a thing…

Historically, landmen have not had to maintain a license. It would place a large burden on both company and independent landmen if they had to maintain some type of license in every state where they worked. As the headwinds in the basins shift and new prospect lines are drawn, a landman could spend a great deal of time and resources complying with licensing and continuing education requirements.

Recently, an Ohio court ruled in Dundics v. Eric Petroleum Corp, Slip Opinion No. 2018-Ohio-3826, that an oil and gas lease falls within the definition of real estate according to the Ohio law and the negotiation of which requires a real estate broker’s license. If it can be interpreted that the assignment of oil and gas leases fall within the definition of real estate, then one can assume that almost any oil and gas trade of any size will have to be negotiated through licensed brokers.

Most proponents of the occupational licensing claim that it protects consumers. Which party is the consumer in this case? A consumer is usually defined as a buyer or user of goods or services. In oil and gas transactions, the buyer or user or lessee or assignee is usually a professional in the business. Do they need protecting? This is weird.

Fortunately the Oklahoma Real Estate License code explicitly excludes oil and gas from its definition of real estate by clarifying that “real estate shall not include oil, gas or other mineral interests, or oil, gas or other mineral leases; and provided further, that the provisions of this Code shall not apply to any oil, gas, or mineral interest or lease or the sale, purchase or exchange thereof.” [2] While this would currently exclude landmen from having to obtain a real estate license, there is nothing to prevent the state from creating a new occupational license exclusively for landmen.

Occupational licensing is an important issue and should be monitored and advocated against in the event that other states want to copy Ohio’s regulatory overreach. Berlin would be interested to hear your thoughts on the matter in the comments section below.

More to follow,

Berlin

[1] Rodrigue, Edward. “Four Ways Occupational Licensing Damages Social Mobility.” Brookings. February 24, 2016. Accessed December 2018.

[2] The Oklahoma Real Estate Commission. “Oklahoma Real Estate License Code and Rules.” OREC. November 1, 2016. Accessed December 2018.

a version of this post originally appeared by the same author on www.oklahomaminerals.com

Same Same, but Different

All,

Bethany McLean argued in a recent New York Times piece that some exploration and production companies who drill and frac horizontal oil and gas wells are on shaky financial footing due to the fact that most don't make money. This is a good argument and it makes sense! She is correct to note that most of the drilling is driven by companies that are able to acquire cheap debt from yield starved Wall Street investors. Berlin agrees that an increased money supply has forced interest rates lower than they ought to be. This decreased cost of capital allows more projects to pencil as viable. 

What Berlin takes issue with is the fear mongering title of the article "The Next Financial Crisis Lurks Underground." Now, Berlin isn't an expert in synthetic collateralized debt obligations (but will taken an organic, gluten/dairy free, and pastured CDO of course, thanks), but here are some takeaways from the causes of the last financial crisis:

Mmmm...pastured, organic financial products above Oklahoma oil and gas mineral rights.

1. Banks lent money to subprime borrowers, but lied about the credit worthiness of the borrowers, and sold these mortgages downstream.
2. Companies sliced and diced these mortgages into complex derivatives. Few people understood the quality of the underlying assets.
3. These derivatives were given favorable ratings by the credit rating companies which qualified them to be purchased by firms thinking they were less risky than the actually were.
4. Insurance companies wrote polices on these derivatives and mis-priced the risk. Some of these insurance products were also make into derivatives.
5. Housing prices decreased and the pile of mis-priced risky assets collapsed.

I'm sure the usual commentators will point out that Berlin missed a couple key bullets, but those are the basics. What is similar in these situations (housing and oil) is that investors are looking for yield (but that is always the case) because debt is cheap. What is different in these situations is that the housing precipitated financial crises was fraudulent, opaque, and systemic. People lied about the quality of the assets, people turned these assets into financial products that few understood, and these products were sold to firms across multiple industries. 

Berlin doesn't believe that the banks underwriting these oil companies' debt offerings are committing fraud. The oil companies are admitting in their financial reporting that they are losing money. Yet folks are buying these bonds anyways as the risk premium is apparently worth it. So while it is bad for the equity owner when the company loses money, it isn't necessarily bad for the management team (who always seems to be paid well), and for the holders of the debt if they are confident that the company can continue to roll their notes forward. 

These bonds also do not appear to have been turned into derivatives and sold across multiple industries. For these reasons, Berlin believes that if in fact oil producers do go belly up (as they do from time to time), it will not cause an international financial crises like we saw in 2008.

Please leave your comments below.

More to follow,

Berlin

"Yes Please, I'd Rather Have a Dividend" - Stockholder

Oklahoma Oil and Gas Interest Owners:

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 a stockholder one has claim to the future profits of the firm. Profits can be retained by the firm or issued as dividends to the owners. If the owner of the firm thinks that the firm will be able to invest the profits more wisely than the investor can elsewhere else, he will be grateful if the company retains the profits and chooses another wise investment for his capital. On the other hand, if the investor has better uses for the company's (his) profits than the company, he will push for dividends.

Production wedges....

In a Retuers' piece, Ernest Scheyder reports that investors in oil and gas concerns are demanding dividends and also according to the chief executive of energy investment at Tudor, Pickering, Hold & Co. “investors are looking for improving results, better returns and operational performance” (Maynard, wouldn't it be weird if they weren't?).

On one hand, at least these companies are now making a profit. On the other, it is not necessarily a vote of confidence for the stockholders to be demanding their cash. Since producing oil and gas requires that the company deplete its oil and gas reserves (read, assets), companies must always be acquiring new leases. Acquisitions and the development of these acquisitions require cash. Because it has proven difficult for companies to grow their production wedge out of free cash flows and with the owners taking their cash elsewhere, this will lead companies  to the debt markets which Berlin has mentioned before is problematic.

If you think Berlin has erred in her analysis or you would like to sell your Oklahoma oil and gas mineral rights and royalties. Please drop us a line or comment below.

More to follow,

Berlin

PS: Thanks to DC for his winning submission to Berlin's query regarding the meaning of "MERGE". "Must Everything Require Grand Epithet" = $10 Amazon gift card. 

Spudding Before Forced Pooling

Oklahoma Oil and Gas Interest Owners:

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.

There are a few reasons why an Oklahoma operator might spud a well before an Oklahoma Corporation Commission ("OCC") forced pooling order is issued.

1. As Berlin discussed yesterday, the OCC is short staffed and the review and issuance of orders is taking a substantial amount of time and in some cases up to 5 months after the pooling was recommended at the hearing. In order to feed the rig monster, operators must keep drilling their wells. After all, a pooling order is not needed to obtain a permit to drill.
2. If a forced pooled unit is not formed and there is no Joint Operating Agreement or any other voluntary pooling of leasehold interest between the working interest owners in the unit, there is no mechanism to govern the development of the unit. One of the consequences of this action is that there are no mechanisms to handle costs. And if a fellow working interest owner can't pay his costs, the operator will not provide well info. In short, operators will spud a well without a forced pooling order so they will not have to share well information in the short term with their competitors.
3. Forced poolings can be a time suck. Dealing with asinine requests on pre-pooling letter agreements, setting protest dates, and finally the protests themselves are often an exercise in busy work. If an operator has a high working interest in the spacing unit, she might just spud the well and file a pooling application in time to have the order issue before the division order title opinion needs to be rendered. 

The rig monster never sleeps, but enjoys purchasing Oklahoma oil and gas mineral rights before a horizontal well is drilled. It increases his NRI and keeps his LPs happy.

The operator incurs a risk when he drills before a pooling order has issued. Hopefully, he has used the time to evaluate the well and if he's made a good well, to lease the offsetting acreage. However, if he had issues drilling or made a marginal well, he is in danger of owning 100% of the working interest as the other working interest parties will have scouted the well and will elect out of the unit when the pooling order issues at a later date. So what are Bruce's options as an Oklahoma oil and gas mineral owner? Once the order issues, he should read the order as it will contain the usual options, however, he should be more strategic as he will have more information available to him.

1. If the operator has made a good well, Bruce's interest will now be substantially more valuable. Bruce could participate in the well if he has completed his diligence on the property and scouted the location. However, Berlin's recommendation is that only professional mineral owners should participate in wells. Still, his mineral interest should command a premium with non-op companies who have other people's money to spend. Bruce should be able to negotiate an oil and gas lease with better terms than those found in the forced pooling order.
2. If the operated drilled a dud, it is unlikely that any non-op will seek Bruce out for his interest unless the non-op just wants to participate with a small amount of acreage in order to obtain well information. In this case, Bruce should just elect the option in lieu of participation under the pooling order that works best for he and his family's situation (ie does he need cash now to buy replacement heifers or maybe more royalty later if an operator decides to density the section). 

Berlin hopes she answered Bruce's question. If you have any more questions about forced pooling, or you would like an offer to sell your Oklahoma oil and gas mineral rights. Please drop Berlin a line or comment below.

More to follow,

Berlin

Saturday Night Special

Somebody owns the oil and gas mineral rights beneath Lynyrd Skynyrds' feet.

All,

Nothing significant to report, might as well rock.

More to follow,

Berlin

Buyers of Oklahoma Mineral Rights, a Small Business Enterprise

Oklahoma Royalty Owners,

Tyler Cowen recently posted about the five smallest industries by firm size.

They are: 

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,

Berlin

Have you given up on this project?

Just a couple of war dogs, Amos Tversky and Daniel Kahneman toast to their partnership in the 1970s.  Courtesy of Barbara Tversky

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,

Berlin

Coal County SITREP

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.

Company	Number of Pooling Orders
Bravo Arkoma, LLC	9
Canyon Creek Energy Operating, LLC	7
Pablo Energy, LLC	6
Newfield Exploration Mid-Continent, Inc.	3
BP America Production Company	1

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,

Berlin

Shut In Royalty Payments

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.

BR

Option to Extend Primary Term in Oklahoma Oil and Gas Leases

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.

BR

Forced Pooling In Oklahoma

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.

BR

Oklahoma's Surface Damage Act

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.

BR

The Public Land Survey System (PLSS) in Oklahoma

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.

BR

The Anadarko Basin

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.

BR