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Despite the recent downturn in oil and natural gas prices, energy companies continue to drill new wells in South-Central and Western Oklahoma.
Before an energy company can drill a new well, every mineral owner within a given drilling and spacing unit must be accounted for either through an oil and gaslease or a Pooling Order by the Oklahoma Corporation Commission. The following is a very broad explanation of a typical pooling process.
What is force pooling?
The Oklahoma statutes authorize the Corporation Commission to create drilling and spacing units, and if necessary, to pool the interests of the owners therein to prevent waste and to protect the correlative rights of the interested parties.
In other words, if most (but not all) of the parties within a drilling and spacing unit wish to drill a well to produce the oil and gas, any reluctant parties cannot prevent the other owners from benefiting from their interests.
If an energy company is unable to reach an agreement with a mineral owner after a good-faith attempt, generally in the form of an oil and gas lease, that company may file an Application with the Corporation Commission to pool that party’s interest with the other owners in order to move forward with drilling the well.
What are your options if you are subject to a Pooling Application?
If you have received a Pooling Application and a Notice of Hearing, the Application will state what the applicant is requesting from the Corporation Commission, which is usually to pool the interest in a drilling and spacing unit limited to certain common sources of supply.
The Notice of Hearing will inform you of the date, time and location of the hearing. Parties to a Pooling Application may protest the application for a number of reasons; however, any protests to the pooling must be filed or announced prior to the hearing.
If your protest is not announced by the time the hearing takes place, your interest will be subject to the Pooling Order once it is entered.
What are your options if your interest is successfully pooled?
Once a Pooling Order is entered, you will receive a copy of the Order, which will state your options as an owner of an interest in the unit. Typically, the Order will afford you a number of options of a cash bonus and royalty payments on production based on the fair market value of your interest.
As an example, your choices may be:
- To participate in the drilling of the well and pay your proportionate costs of the drilling, maintenance, repairs, etc.
- To receive $1000.00 per acre cash bonus and 1/8 royalty
- To receive $800.00 per acre cash bonus and 3/16 royalty
- To receive $500.00 per acre cash bonus and 1/5 royalty
- To receive no cash bonus and 1/4 royalty.
You will be given an amount of time, usually 20 days, to choose your option and make your election to the operator of the well. The Order will also state that in the event an election is not made, you will have been deemed to have elected one of the options as stated in the Order (generally, the lowest royalty option).
Conclusion
As oil and gas drilling continues in our state, pooling proceedings are becoming more common. As a mineral owner, you have options; however, the time frame to exercise those options is usually limited.
If you have received notification that you are subject to a pooling proceeding, the responsibility is then on you and your attorney to get proactive, voice your objections and achieve the best outcome for your interest.