NewsOK Q&A: Forced pooling in mineral land leasing has upsides, downsides

From NewsOK / by Paula Burkes
Published: August 31, 2017
Click to see full story – Forced pooling in mineral land leasing has upsides, downsides

Click to see Melissa Gardner’s attorney profile

Melissa Gardner is a Director who practices in the Energy & Natural Resources Practice Group.

Q: If you’re approached about leasing minerals, do you have options?

A: You do have options. However, none of those options include avoiding leasing your minerals. In Oklahoma, the development of minerals is a compelling state interest. Therefore, if you refuse to lease your minerals, you will be subject to forced pooling. Forced pooling of minerals is similar, in many ways, to acquiring property via eminent domain. However, in this context, it’s a private company acquiring the minerals for a period of time to develop a spacing unit. Because such acquisition is a “taking,” it’s in a much more limited form than leasing the same minerals.

Q: Why would the state allow companies to “take” individuals’ minerals?

A: If an individual in the middle of a spacing unit refused to negotiate or lease their minerals to an operator, their “holdout” would prevent the surrounding mineral owners from developing their assets. This, combined with the aforementioned state interest of developing oil and gas in our state, has led courts and the Legislature to determine it’s in everyone’s best interest to ensure production.

Q: What are the pros and cons of leasing versus being made subject to a forced pooling order?

A: If you choose to sign a lease, you will have the ability to negotiate more of the specifics of the usage of your minerals. You are in a position to get the oil and gas companies to agree to some conditions and special provisions. If you are subject to a forced pooling (as managed by the Oklahoma Corporation Commission), you’re not in a position to negotiate these details.

Second, you can negotiate bonus and royalty costs. If you are subject to a forced pooling order, you’re given three options, being a combination of the prevailing prices in the surrounding areas, with no option to negotiate those prices. In the alternative, if you allow yourself to be subject to the OCC forced pooling order, the applicant is given a shorter time within which it has to commence operations. The average lease is valid for three to five years, whereas the average pooling order is valid for six months to a year, both of which extend after production has been initiated. This keeps your minerals under contract for a shorter period of time.

Additionally, the minerals only are forced pooled as to certain, limited geological formations. If a well is drilled and producing from those zones, your minerals are still open and unleased as to other, non-pooled zones. In the alternative, most leases cover all depths or, at a minimum, from the surface to a certain depth below the surface. Finally, forced pooling orders expire at the end of production. If a producing well is drilled during the first year of a five-year lease and only produces for two years, the lease remains valid, and your minerals remain unmarketable for re-lease, for an additional three years.