Pooling Cost Determination Change of Operator Week Four September 15, 2011 Eric R. King

The Forced Pooling Statute In order to avoid the drilling of unnecessary wells To protect correlative rights Prevent economic waste May require owners to pool and develop the lands in the spacing unit as a unit One purpose of the forced pooling statute is to eliminate the “roadblock effect” that would allow one owner within the unit to frustrate the economic development of the unit Purpose of the forced poling statue is to equalize the risk of loss between non-consenting co-tenants by forcing them to determine in advacne whether thety will share or not in the benefits and risks of exploration It hass been said that the spacing order sets the stage for development and guards the public interest in developing an orderly and judicious drilling program, it is aimed at protecting the interest of all by the prohibitions against waste. See – Tenneco v El Paso 687 P.2d 1049 (Okl. 1984)

OAC 165:5-7-7: Pooling

OAC 165:5-15-3: Pooling Orders

May your negotiations as a Landman on values be as sharp as this couple’s math.

Cost Determination “Motion” OAC 165:5-7-7(g) (g) Notice of hearing for a redetermination of well costs shall be as provided in the initial application. Such request shall be in the form of a motion filed under the original CD number of the pooling.

Pooling Cases Pooling cases summarized Be sure and review case number 52 and 53 involving Harding and Shelton. 52 – The court found here that a pooled interest was still valid notwithstanding the fact that the underlying lease may have been released To allow the opposite result “would cast the established rights and obligations of any holder of a mineral interst in the previously pooled common source(s) into chaos every time there was a change in ownership of mineral or leasehold rights in any pooled formation”. Prior pooling is unit 1. Includes not all of the common sources of supply Unit 2 is polling previously un-pooled common sources of supply 53 – Requiring participation in subsequent wells or forfeiture of working interest is an unconstitutional taking who owned no interest in the unit 2 common sources of supply.

Participant’s Right to Share in Force Pooled Acreage Since 1960 the Commission has ruled that participants may share in force-pooled acreage The Right to Share is an equitable right Randy Specht the Commission Appellate Referee has suggested the time is ripe to make this issue the subject of a rulemaking. See also Michael L. Decker’s article, In Search of a Visage of Truth – Rulemaking or Adjudication at the Corporation Commission, 60 OBAJ 2655 (1989)

Strategy in Enforcing Such Right

Unusual Overburdened Transactions 1/4 royalty Bonus of $500 per acre to be paid within 2 years of execution of lease 100% back-in after payout Request for statutory bond allegedly available under 52 O.S. Sec 87.1 (allegedly allows for deduction of completed well costs from production – but makes no provision for payment in the event of a dry hole)

Unusual Overburdened Transactions 40% burdened leases delivering a 60% NRI

We are fortunate to have captured the reaction of a news anchor regarding the acceptance of the unusual overburdened transactions Bruce Almighty Clip

Overburdened Transactions

The Treatment of Excessively Burdened Working Interests Under a Pooling Application

See “A Primer on Forced Pooling of Oil and Gas interests in Oklahoma” by Charles Nesbitt, 50 O.B.J. 648 (1978)

A clip that explains the hierarchy at the Corporation Commission

Mineral Owners and Oil Companies 1:13 time Commissioners Mineral Owners and Oil Companies The Lawyers

Change of Operator 165: 5-7-11

Sample Forms

One Leadership Square, 15th Floor Eric R. King One Leadership Square, 15th Floor 211 N. Robinson Ave. Oklahoma City, OK 73102 (405) 235-5518