Expert: Frederick M. - 10/30/2009

Question
Recently had a company interested in leasing 160 acres - Atoka- NW/4 of Sec 32, Township 2 North, Range 12 East. My research finds the Woodford Shale as possible hot spot. Should I contact the companies currently drilling (XTO, Devon, Continental, Newfield) to see if they are interested? I'm a stockholder in some of those companies and would like to "keep it in the family".
My current offer is $250 per acre/3 years/w 3/16ths royality. Your thoughts?

Answer
Cathy, "Titan" is the only company I see currently leasing in Section 32 recently. St. Mary and Sedna Energy are the only two currently leasing in the nine surrounding Sections that I can see.

$250 per acre doesn't sound bad given the current activity and production in the area, but I'd still attempt to get offers from all three companies before signing. If you own an entire 160 acres of minerals that will usually give you some "leverage" with potential lessees...especially competing ones.

I noticed that Sedna Energy is planning to drill a well in Section 23-2N-12E, which is about three miles NE of your Section 32. They've applied for a forced-pooling as well, though the hearing has been continued until November so we won't know what, if anything, it's pooled for until then. However, once it IS pooled, the bonus offered in the pooling would give you some indication of what you might expect to get in a lease.

You can follow the status of this pooling application on the OCC web site: http://www.occ.state.ok.us/Orawebapps/OCCOraWebApps.html They have also applied to space this section at 640 acres for about a dozen formations, indicating to me that they plan to drill a fairly deep well.

Right now though, I'd say the bonus amount offered by whoever contacted you is fair and I'd accept it if none of the other companies offer you more, but the decision is up to you of course. Only by doing a serious "engineering" study and only by having intimate knowledge of the area geology (which I do not) could one more accurately determine what a "fair" bonus amount would be. My "guess", though somewhat educated, is nonetheless not the end all of guesses so you may want to get a second opinion before proceeding to sign a lease with 160 acres for only $250 per acre.

Again, I'd also check with the other companies leasing in the nearby sections. You could of course also contact the companies you mentioned as at least some of them are also currently leasing in this GENERAL area. Get as many interested parties as you can, then take the highest and/or best offer.

As with all leases, you might want to include some protective clauses of your own (depth, deductions etc.) A competent oil and gas attorney could help you draft such clauses if you don't already have your own versions.

Hope this helps you out.
Frederick M. "Mick" Scott CMM RPL
Timbercreek Mineral Company, LLC