AboutFrederick M. Scott CMM RPL Expertise I can answer questions about oil and gas leasing, and give suggestions on negotiating a good oil and gas lease and how to best deal with oil companies or their representatives. I can answer questions about buying and selling oil and gas royalty or mineral rights. I can help with questions concerning forced-pooling, correlative rights, deeds and conveyances, and "post-production" costs. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.
Experience I am a Certified Professional Mineral Manager (CMM) (certified by the National Association of Royalty Owners in Tulsa, OK) and have managed my own oil and gas properties in Oklahoma for over 10 years. I have dealt with many landmen, attorneys, and other oil and gas professionals in the course of doing so. I am also a member of several professional associations and have written articles of interest to royalty owners which have appeared in several industry publications. I have prepared deeds, title work, and done curative work for my own minerals; and have acquired a good deal of knowledge on the subject of oil and gas law and landwork in general in the process. I am the owner of Timbercreek Mineral Company, LLC; which was formed as a vehicle to better manage family minerals, and as a way to facilitate the buying and selling of oil and gas rights for other people.
Publications National Association of Royalty Owners "Action Report" (ROAR); NADOA Magazine, Landman Magazine, and several royalty owner association group's newsletters.
We just recently signed a gas lease in Bradford County, PA with Chesapeake. I have a few questions related to unitization or pooling.
1. If a company starts drilling a well near our property, how do we know whether or not we should be involved in the unit or pool?
2. What if it is a different company from the one we signed up with?
3. Which payment lease prevails? Do the royalty payments go by my lease or the lease the well is drilled on?
4. Who oversees or manages this process (PA DEP)?
Thank you very much for your time.
Anita
Answer Anita, sorry so late in responding....been a busy week! Pooling and unitization are often considered to be the same thing by mineral owners, but they are not really. You likely gave permission for both unitization and pooling in your lease; which of course you read fully before signing, right? :-)
POOLING, of the variety for which permission is granted in your lease, is simply the bringing together of small tracts or fractional mineral interests for the drilling of a single well in a single spacing unit. In most states, forced-pooling is an available remedy to pool unwilling participants; if done in good faith. Pooling is "perfected" (becomes official) when the lessee files a "Declaration of Pooling" in the courthouse; except in states like Oklahoma, where the state spacing order automatically pools the leased interests into a unit.
UNITIZATION, on the other hand, refers to the combining together of several or more producing leases over a pool of oil or gas to form one large "unit." Having one large unit, or "lease" allows all the wells to work together "as a team" in order to more efficiently produce oil and gas that would otherwise be unrecoverable. One well would likely be used as an "injection" well into which a substance would be injected to "push" previously unrecoverable quantities of oil and gas out of the other wells in the unit. Everyone in the unitized field will share in the production based on their acreage contribution to the unit.
While this means that your royalty will be reduced (you now own a smaller piece of a larger drilling unit) it also means that you will be paid royalty on oil and gas that would otherwise remain in the ground. A field in not normally unitized until conventional methods of recovery have been exhausted; thus it usually occurs quite some time after initial production from the field is obtained.
A lessee cannot affect your rights under your lease without the permission to pool or unitize, which is why they usually include permission to do so in your lease. To go back later and ask each lessor for permission would be very cost-prohibitive. Without the power to unitize or pool, your primary term (i.e. three years) could not be extended without drilling a well on your lease, whereas with pooling or unitization power, the lessee can extend your primary term by drilling anywhere on the pooled or leased premises.
The power to pool or unitize granted in your lease does have potential for abuse, and may sound sinister, but in reality the power is not often abused. In most cases it benefits everyone. Likely you could protest a unitization if you had just cause to do so.
Most states require the lessee to exercise the pooling or unitization power "in good faith." A lessee cannot, for instance, pool your lease with your neighbor's simply to hold your lease with production from a small well that is drilled on your neighbor's land, which was originally in a separate unit. There must be a legitimate reason for pooling or unitization. If you did not think their reason was legitimate, you could protest to the state oil and gas regulatory body (not sure what that is in Pennsylvania, but I'm sure you could Google it.) The burden is on you, the lessor, to prove bad faith.
This is by no means an exhaustive study of pooling and unitization, but should give you a basic idea.
