Compulsory pooling and landowner not willing to lease

For those mineral rights owners that are hesitant to lease for oil and gas production, compulsory pooling provides an option that some landowners find appealing.

Leasing oil and gas mineral rights is a choice, not an obligation. Some landowners are anxious to lease because the potential for cash royalty payments is present. Other landowners may not want to enter into an oil and gas lease because the potential impacts to their existing business are not compatible with their long term goals.

Landowners have asked about compulsory pooling because they had been told that if they didn’t sign the standard lease being offered, they would “ruin” it for their neighbors who had signed.

Other concerned landowners asked about being sued by the State and being forced in a compulsory pooling situation.

Mainly, compulsory pooling is used to allow equitable and efficient oil and gas development, while preventing the drilling of unnecessary wells.

Let’s use an example to show how it works: You own 160 acres and your neighbor owns 80 acres. Your neighbor has leased his mineral rights, but you choose not to. The drilling company needs 40 acres of your land and an adjacent 40 acres of the neighbor’s land to obtain a drilling permit for the depth and geologic formation they are targeting to harvest. Without being under some type of lease or compulsory pool yourself, it prevents your neighbor from receiving any royalties because the oil company cannot obtain the permit to drill the well  without the leased amount of acreage. To allow the oil and gas development to drill the well, they can apply to the Supervisor of Wells for a Compulsory Pooling order. The compulsory pooling order allows the oil company to drill the well, the neighbor to collect his royalties and you to receive a royalties as well even though you aren’t under the lease.

The compulsory pooling order may include a lot of language that is not applicable to an un-leased mineral owner, for those who choose not to be an investor in the well the order will include:

  1. Your 40 acres compulsory pooled into the lease so the well can be drilled.
  2. Verbiage stating: "The nonparticipating owner of an un-leased mineral interest shall be considered to be subject to 1/8 royalty interest which shall be free of any withholding for payment of any costs of drilling, completing, equipping, or operating costs, including post production costs."
  3. A non-development order that will not establish any right for the operator to develop on your surface lands to place a well site, tanks, roads, etc.
  4. No lease bonus because there will be no lease signed.

Compulsory pooling, depending on your goals and objectives, is an option that some landowners have indicated works well for them. They receive a royalty based on gross income, not net income, they are not obligated to a lease and there are no development or surface activities on their land because mineral harvesting is occurs underground by means of directional or horizontal wells.

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