Force pooled

Article in the Steubenville Herald Star today. Several landowners in the Lisbon Ohio area were force pooled into a unit . No signing  bonus and 12/12% royalties.  Chesapeake  was the gas company.

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Permalink Reply by Booger on February 14, 2014 at 3:02am

i have heard that if you are forced pooled, then you will recieve 12.5% royalty until the well has paid for itself (or paid for itself 2 times over)..........after that, you will recieve 100% royalty for the life of the well.............is that accurate?............if so, then maybe the small acre owner is holding out because they want to be force pooled.

Permalink Reply by Mark McGrail on February 14, 2014 at 3:32am

B,

Landowners whose property is unitized receive their royalty just as other landowners in the unit.

As compensation for being "forced" into the unit they also receive a portion of the working interest (the portion is proportionate) which is paid out after well costs are recovered ( up to two times the value).

At least that's the Cliff Notes version.

Permalink Reply by Philip Brutz on February 14, 2014 at 7:15am

http://codes.ohio.gov/orc/1509.27

"If an owner of a tract pooled by the order does not elect to participate in the risk and cost of the drilling and operation of a well, the owner shall be designated as a nonparticipating owner in the drilling and operation of the well on a limited or carried basis and is subject to terms and conditions determined by the chief to be just and reasonable. In addition, if an owner is designated as a nonparticipating owner, the owner is not liable for actions or conditions associated with the drilling or operation of the well. If the applicant bears the costs of drilling, equipping, and operating a well for the benefit of a nonparticipating owner, as provided for in the pooling order, then the applicant shall be entitled to the share of production from the drilling unit accruing to the interest of that nonparticipating owner, exclusive of the nonparticipating owner's proportionate share of the royalty interest until there has been received the share of costs charged to that nonparticipating owner plus such additional percentage of the share of costs as the chief shall determine. The total amount receivable hereunder shall in no event exceed two hundred per cent of the share of costs charged to that nonparticipating owner. After receipt of that share of costs by such an applicant, a nonparticipating owner shall receive a proportionate share of the working interest in the well in addition to a proportionate share of the royalty interest, if any."

Permalink Reply by Tree Farmer on February 14, 2014 at 7:23am

As a landowner, I would take that deal any day, it is a huge victory and payday for being forced in. I have fantasized about the day when some landman threatens me with being forced into a pool, ha, bring it.

Permalink Reply by Booger on February 14, 2014 at 7:40am

so if you had 10 acres force pooled.........you would recieve 12.5% royalty until the well paid for itself (or up to 2 times).........and then you recieve 100% royalty on those 10 acres.

so 10 acres at 100% royalty would be equal to having 80 acres at 12.5% royalty........that sounds like a pretty good deal.

Permalink Reply by scott peterson on February 14, 2014 at 7:44am

Does to me too on the surface but what TM says makes a big difference!

Permalink Reply by TM on February 14, 2014 at 7:57am

You only get a proportionate share of the working interest not 100% of it. Your share would be determined by how many acres you have in the unit. Better hope the well pays itself off and is a good producer. It could take many years until you pay off the share of costs that must be recouped and you receive your ownership share in the well.

Some wells may never pay off in the end. Then take into account the decline rates for shale wells by the time the well pays off. Production could be way down by that time.

Permalink Reply by Joseph-Ohio on February 14, 2014 at 8:15am

Also consider Post Production Costs, Market Enhancement Costs, Severance Taxes, Real Estate Tax increases, who pays them, who is paid, all as stipulated in a lease that the ODNR Division Chief has considered 'just and reasonable' but the 'force pooled' dissenting landowners obviously had not (but are being forced into).

Seems to me landowners are wide open to taking a beating.


I think there's a great need to be careful.

I think there's a great need to change / repeal the law myself.
Permalink Reply by Booger on February 14, 2014 at 8:58am

TM - you still would get 100% royalty on your proportionate share (your acres)...which is eight times better than 12.5%.

the vast majority of wells will pay them selves off in reasonable time, or else they wouldn't be drilling them.

decline is a good point - but you will recieve 12.5% from the start.........and decline will happen either way - so 100% royalty on declined production is still eight times better than 12.5% on declined production.

but like J-O repeatedly says....the law leaves some things open to interpretation and could be better written.

but even as it is written - i think i would hold out (with small acerage) in hopes of being force pooled.  

 

 

Permalink Reply by Dodge Charger on February 15, 2014 at 4:29am

Booger,  you state "but you will recieve 12.5% from the start", and you're applying this to someone that has been forced pooled?  That's not the way I understand it.  You don't start getting royalties until after your share of expenses has been paid off -- including penalties -- up to 200% of costs.  Only then do you start 'reaping' "rewards/royalties".

Put another way, the landowner that was forced pooled may be awarded 12.5% royalty, but that amount would be applied towards their portion of operational costs plus penalties. They may not actually see any royalty income until after their entire share has been paid back.

If I am incorrect in my understanding, I would appreciate someone showing me explicitly where it states otherwise as I know someone that could be in this position (of being forced pooled).  In the law itself it states "until" when covering costs/share/expenses/penalties:

http://codes.ohio.gov/orc/1509.27

Permalink Reply by Booger on February 15, 2014 at 10:27am

DC - from your earier post;

"A non-participating owner will not receive any share of production, exclusive of his/her share of the royalty interest, until their share of such costs are recovered by the Oil Company, plus an additional risk penalty."

the way i read this, you get 12.5%.......

.i didn't read the article, but if corvette quoted from it (top of discussion), then it also states they get 12.5% royalty.

Permalink Reply by Philip Brutz on February 14, 2014 at 10:10am

Does anyone know where the mandatory rulings are posted?  I have not been able to find them on the ODNR web site.  They should be public information.

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