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What’s Worse than an Oklahoma Drive-by Pooling?

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First, for those of you not familiar with the phrase “drive-by pooling”, it is used in Oklahoma to describe the scenario in which an oil company applies to the Oklahoma Corporation Commission for a forced-pooling without first fulfilling the requirement of making a “bona fide effort to reach an agreement” with affected mineral owners, in the form of an oil and gas lease, prior to their application.

Though rare, there have been instances where companies have skipped this necessary step altogether and headed straight to the pooling hearing because they were in a hurry, for whatever reason, to force consent before negotiations with their mineral owners had been completed, or in some cases before they had even begun; knowing full well that most mineral owners will not protest at a hearing because most are not even aware they can protest. The truth is, mineral owners have a valid reason and right to protest a forced-pooling (either by phone or in person) if they feel they were not given an opportunity to negotiate a lease prior to being listed as a respondent on a pooling application.

Once approved, an Oklahoma forced-pooling order gives the applicant oil company the right to drill a well even without the consent of the mineral owners they could not locate or reach an agreement with. Since a pooling requires that a diligent and meaningful search be made for mineral owners prior to approval, and requires testimony, under oath, that a good-faith effort was made to negotiate a lease with those they did locate, the forced-pooling process in and of itself is not a bad thing as it facilitates drilling in our state, but skipping over (or “driving by”) either or both requirements indicates a lack of respect for the process, and the law, on the part of the applicant.

What’s worse than a drive-by? How about being missed altogether? There have been more than a few instances where companies do not take the time or effort to properly search for current mineral owners prior to applying for a forced-pooling order. This can mean some owners will receive neither a lease offer or a forced-pooling notice, and their first indication that something is “wrong” may be when they see a well being drilled on their property. If an oil company drills and completes a producing well without permission (in the form of a lease or forced-pooling order) it would likely be seen as trespassing, which, if found to be true could open a big bag of worms for the company, and a potentially much bigger bag of cash for the trespassed mineral owner if the well turned out to be a prolific producer.

Companies can avoid trespass by diligently researching ownership prior to applying for a forced-pooling order, and can apply for a second, or “cleanup” pooling if they become aware (or are made aware by a mineral owner) that they missed someone initially. Unfortunately, the cleanup pooling is sometimes used as a convenient method for rectifying a lack of due diligence prior to an applicant’s initial pooling.

Actual trespass by oil companies can put an affected mineral owner in the proverbial catbird seat, and could result in the company being forced to carry the mineral owner, without penalty, as a working interest owner until the well pays out in order to satisfy the trespass. Great for the mineral owner assuming the well continues to produce without major issues after payout, but bad for the oil company, because “carrying” a mineral owner as above is much more expensive than leasing or force-pooling them would be. Alternatively, the owner may be able to lease the trespassed mineral rights to the company at well above market value rather than be “carried” in the well. Neither is something a company would wish for.

Since the forced-pooling process is supposed to benefit everyone, including mineral owners (per the Oklahoma Corporation Commission’s own website), I would assume an administrative law judge presiding over a forced-pooling hearing would agree that if it’s obvious an applicant failed to do a “diligent and meaningful” search to locate mineral owners prior to an initial pooling, the company should be denied, on those grounds, the opportunity for a second (or cleanup) pooling that would serve only to whitewash its lack of respect for the pooling process.

Companies need to ensure they do what is required prior to applying for a forced-pooling order, and the Oklahoma Corporation Commission should be willing to deny a second pooling application when it is made apparent to them (perhaps by a protesting mineral owner) that these requirements were not initially met. In this way, Oklahoma mineral owners can continue to have faith in the integrity of the forced-pooling process.

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