So, I'm not new to oil and gas leases but it's not like it's my business either. I have a less than .5 acre lot in town that came with minerals and a company wants to lease at 1/8th and drill it. I don't want to lease at what the company is offering and have countered. They have offered the same again with the alternate to participate as a working owner. I'm considering that. They say the cost to drill is about 3 million and obviously I'd have to pony up my part of that.

Outside of losing the initial investment if it's a dry hole, why would I not want to do that? How do I keep them honest? Related reading material I might look at without getting an oil and gas law degree?

And of course they may want to force pool me at some point if we don't get together.

Getting more than a 1/8th interest is very rare espically since you own such a small piece of the pie. I would try and get more of a bonus for your acreage. If you agree to be a participating owner then yes you have more of a risk but at the same time you will get more money if the well produces but then again you are having to put money in up front. I would suggest trying to get a bigger bonus, and try and make the contract in your favor. Try and get a depth clause in there so that you still own the lands lower than they are going to drill or try and make the contract specific to the formations that they are drilling. That frees you up to be leased again in the different depths. It is better for you to get something worked out with them rather than being forced pooled.

Just return the offer.
Tell them to call you at the end of a month.
And tell them it should be more advantageous to you.
If not,dont bother.
And get a O&G lawyer.

Among other things, I agree with gmwise' last sentance above. Is the company known and reputable? Check with the state to see what kinds of complaints may have been filed on them. Find out how you will know how much has been extracted from this well, if it hits, so you can be assured you are being fully paid. I've seen a few cases where the O & G company underreported the production to minority investors so they got shagged in the deal.

The lease they sent with the first offer does not have a depth clause and the wording of the shut in clause is not to my liking. It's also for a five year term. Other than that it's pretty straightforward and I might be inclined to accept 3/16 and no bonus, one of the two options they initially offered. At less that 1/2 acre, the bonus is rather insignificant to me. The other first option was $100 acre and 1/8.

I called them and told them I'd take $50 and 3/16 on a three year term or 1/4 and 0 on a five year term. He told me anybody who didn't accept their terms would be force pooled.

Then a couple of months went by and they sent me a spacing order and a request that I sign the original lease. (I had not been notified of the spacing order hearing, not that I would have objected.)

I sent them a letter back stating the same terms above.

A couple of days ago I got another letter asking to sign the original lease or to sign the attached Authority for Expenditure and send them $2400 to participate in the well.

So, we're still not on the same page nor making any progress other than them going through the motions to be able to say they tried to negotiate if they force pool.

I'd likely be willing to take the 3/16 and five years and hope they drill. I've negotiated a few leases on other rights for a lot larger tracts, have a couple with producing wells and have or had a working interest in a well that was given to me as a company bonus. But I've not tried to participate in a well otherwise nor been force pooled.

I would assume they skipped a step in the offer for us to participate. There would be a participation and operating agreement to negotiate before I'd be signing an Authority for Expenditure and handing over funds, buts that's a guess on my part. If I thought I wouldn't get fleeced in the process I might participate in the well.

If I'm forced pooled I'd still get the opportunity to participate if I desired but that would be under terms set by the CC, again I'm guessing, since I haven't been down that path.

The company is not one of the majors, google says 5 to 10 Million in annual revenue. I will check with the CC to see if they've racked up complaints.

Legal council would be good, particularly going the participation route, but those expenses would be hard to cover with such a tiny parcel so maybe that's one more reason not to go that route. I'm trying to get a little more educated before hand, just in case.

Name the company. Why not? Your offer sucks (most likely). 100 an acre bonus? Sounds really out of the market. Of course, it doesn't sound like they pooled you either. If they did that, you'd get the "market" rate in the area. I think it's very odd that they sent you an AFE. Name the operator. IF they suck, you may not want to participate. btw. 5 to 10 million a year is a very small oil company. VERY small. But, most are, really.

I get loads of unsolicited offers like these. The best deals over the years have almost always come from GHK Exploration. Don't ask me why because I don't know. Just my experience. Maybe someone here could tell me why.

Yeah, I thought $100 an acre was low too. The last I leased was SW central Oklahoma, Caddo or Grady county where most of what I have is, and was $400 an acre and 3/16 IIRC. That was before the bottom fell out of the gas market. Since this is something like .40 acres we're not talking a lot of money.

I was trying to find some stats on average lifetime gas well production for Oklahoma to try to figure out a general idea of what the gross or net proceeds might be. I didn't have much luck but I did find some stats for Texas and when I calculated total average production on an average well at today's price and what my percent would be, it's not all that much even if I invested. But I'm not sure I guessed at that right. It appeared to not be enough to make me want to get on board with becoming a partner and the effort of due diligence I'd want to do as a result.

I'll leave the company nameless but I don't think this is one of those random offers of a company buying up leases. They have an established drilling site just across the section line from my section. They've drilled a disposal well and supposedly plan on drilling three horizontal wells from that site, one to start soon, apparently not going in my direction since I'm not a party to that well, followed by the one that would go into our section and then a third one.

The lease agent said they had bought leases at $100 and 1/8 in the area and force pooled those who didn't agree. I guess I could possibly dig up the details on people who leased in the other section for the first well at the court house and the details of anyone pooled at the corporation commission but I don't know. I can't remember if my other leases had the actual lease amount on them and while I've looked up property records, I've not looked up oil and gas leases before, nor have I tried to research anything at the corporation commission.

Just to clarify, I don't get random offers (at least not anymore). They now know exactly what they're doing and where the drilling is expected to commence, etc. When I said "unsolicited" I meant that I have landmen and XYZ Gas This & That sending me offers trying to do better than what I currently have. Some are shady and try to actually buy the mineral rights by using ambiguous language. Like I wrote before, I find the best deals will come from the actual exploration company doing the drilling. I am guessing that is why over the years most of the best offers have come from the likes of GHK.

Things aren't great right now. To give you an idea, my last lease for 3/16 and three years was $1200 (Roger Mills).

Nice thing about forced pooling is the company has to provide evidence of what has been leased in the surrounding drilling and spacing units. You usually get more favorable terms but you also give up some of the provisions of the oil and gas lease.

To truly get an idea of what you should do, I would suggest you contact an attorney and get an opinion. Very often there are provisions in a lease that lawyers will understand but laymen may not....such as indemnification.

To answer your point as to why you should not participate in the drilling as a working interest owner? Well, you could end up paying HUGE amounts and you will have to sign a joint operating agreement and/or be forced pooled. JOAs are very wordy legal contracts and pooling provides no "non-consent" provisions, generally.

At one time, I had 1/4 of 1% of a well as a WI owner. The Dry Hole Cost for this well was about $2500 to my interest. I ended up being obligated to over $10,000 and there was nothing I could do to stop the hemoraging. It was awful! My boss at the time, said he had a similar situation that ended up costing him well over 10 times his dry hole cost.

Participating as a working interest owner is not for the feint of heart. There is simply not much you can do to keep the operator "honest". There are literally thousands of ways they can screw you....sorry, didn't read the thread so I don't know who the operator is.

Again, don't rely on my advice, I'm not an attorney. You should hire one that knows the ins and outs of the oil business.

No crap...If I had the time and inclination I guess I can learn what I need to learn, but since I have no land for that type of lease.
I would have to (gulp) rely on a O&G attorney.
Good fortune to you.

Things aren't great right now. To give you an idea, my last lease for 3/16 and three years was $1200 (Roger Mills).

Mike, I might have even looked up your land. Lived at Roger Mills Courthouse for a while. 3yrs at 3/16th has been the terms on 99% of the leases I have seen for a while now. The bonsus just differ to much to say what the norm is.

I got the official request for force pool notice in the mail today. I think I'll get more acceptable terms that route anyway.