In Oklahoma mineral owners can be force pooled, allowing for the drilling of a well without the mineral owner’s consent. However, what is the extent and limitations of such an Order?
The process starts when a party with the right to drill a well on an area of land, usually as an operator under one or more oil and gas leases (the “Applicant”), applies for a pooling order with the Corporation Commission of Oklahoma. Under Oklahoma Law, the Corporation Commission of Oklahoma is granted authority to create a pooled unit covering a specific area of land, as to specific depths and formations.
By filing an Application for Pooling, an Applicant is able to force any other party with the right to drill to choose to participate in the proposed well unit or assign their interest to the Applicant in exchange for a royalty and bonus interest in the unit. The Applicant is required to identify and provide notice to all other parties who hold a right to drill. Any party not receiving proper notice is not bound by the terms of the Pooling Order.
Those who choose to participate are given an interest in the purposed unit equal to their acreage within the unit. They are then entitled to that proportion of production and costs. Estimated costs are set out in the Pooling Order.
Those who do not wish to share in costs/production of well are allowed to elect a bonus and royalty compensation in exchange for all of their interest in the Unit. Effectively, all interest is assigned to the Applicant subject to a specifically set out bonus and royalty.
All parties are given a set period of time, usually being 20 days, to elect whether to participate or choose which bonus and royalty they wish to have in exchange for their interest in the pooled unit. Those who do not make an election within the set period of time are “deemed” to elect an interest set out within the Pooling Order. Usually this “deemed election” is the highest bonus per acre, with the lowest royalty (usually a 1/8).
Pooling Orders affect mineral owners and working interest owners (Lessees under an Oil and Gas Lease) equally. A non-participating mineral owner effectively leases the land within the Pooled Unit to the Applicant for a specified bonus and royalty. Similarly, a non-participating working interest owner assigns their interest in any current oil and gas lease, within the Pooled Unit, to the Applicant, in exchange for the same bonus and royalty specified within the pooling order. Note however that any royalty is paid first to the Lessor under the assigned oil and gas lease.
Pooling Orders are meant as a way to promote oil and gas development amongst all interest owners. Pooling Orders do not prohibit or alter agreements between an Applicant and other interested parties within a Pooled Unit. In fact, agreements with an Applicant can alter the deadlines, bonus and royalty, and many other provisions of a Pooling Order.
When determining the effect of a Pooling Order, you should always identify:
- Who are the parties given notice under the Pooling Order;
- What area of land is affected by the Pooling Order;
- What Depths are affected by the Pooling Order;
- What are the provided election bonus and royalty rates;
- What is the “default” election if a party fails to respond;
- When is the Pooling Order effective;
- What is the election period
- Who has elected under the Pooling Order
- What agreements have been made outside of the Pooling Order.
By identifying all of the above information you will be able to determine how any party is affected by the Pooling Order and be able to credit ownership of interest within the Pooled Unit. Because all Pooling Orders differ on a unit by unit basis, there is no set rule on how they will affect an area of land. Because terms within a Pooling Order cannot be easily altered or attacked, they should always be carefully reviewed.
Mazurek & Holliday PC is a full-service oil gas and energy law firm focused on meeting the energy law needs of our clients throughout the United States. If you have any questions about this topic or any that affect your energy rights, please contact us.