Pooling Amendments

Hi,

I was trying to get info on pooling amendments for old leases. I hear some companies are paying signing bonuses, royalty increases for amending from 160 acres to 1280 acres. I have heard this has been done with some old Oxford leases.

Thanks for any help.

Robby 

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Permalink Reply by Dexter Green on June 27, 2014 at 4:04pm

"The language of the leases in question have an indefinite secondary term.  It does not specify the duration of the secondary term, instead giving the lessor absolute judgement of what "paying quantities" are."

That sounds a lot like basically every lease signed in Ohio pre-2010.  Producers have always had the right to determine what "paying quantities" meant.  I looked into the merits of the argument you're making and I traced it back to a Beck lease issue.  It looks like what they did was create a primary term of five years (standard) and then an extension term whereby they could pay the yearly delay rental in perpetuity, thus making it a no term lease.  That is certainly not legal.  But a secondary term (a production term, if you will) almost never has any time limitation because production and not time itself are the binding factor for the legality of the lease.  So I think you're meshing together two different categories of leases and using one rule to cover them both, which I do not think is applicable to current Ohio law.

Permalink Reply by Robby on June 26, 2014 at 3:07pm

Thank you for that information. It was very helpful!

Robby

0ym9x5ag7ury2Permalink Reply by 0ym9x5ag7ury2 on June 26, 2014 at 9:39am

Robby,

      Take your lease to a lawyer, it's probably no longer valid and you'll be signing up for a new lease. Your ignorance will be their gain when you sign into another bad lease.

Also to figure your royalties you will take your acreage, 30 acres  for example and divide by the 160 acres assuming the lease is still valid. 30/160= .1875 X .12 (assuming your royalty percent is 12) = .0225.

Multiply this number times the millions of dollars made off of the sale of products taken from the well and you have your royalty money if you have a Gross royalty.  $20,000,000 x .0225 = $450,000

Now if you allow a 1280 acre unit you have 30/1280= .02344 x .12 = 0.0028125  I admit the amount of product taken from the 1280 acres will be a lot more than the amount of product taken from 160 acres, but assuming the same well production your share would be: $20,000,000 x 0.0028125 = $56,250

In my opinion a smaller unit works in your favor for percent ownership. If your neighbors lands are more productive then you could make out better having the larger unit.

Never sign a document for an oil, gas or pipeline company without having a lawyer explain to you why you shouldn't sign.   "Money Brings Out The worst In People"

Permalink Reply by Roy A. Wagner on June 27, 2014 at 2:45pm
Appalacian,
Do you have any cases where the perpetual leases have been shown to be illegal in Ohio? We are very interested as the current lessee has been doing minimal production just to hold the lease.

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