Expert: Frederick M. - 10/6/2007

Question
My Brothers and I received a letter from Chesapeake Energy wanting to know if we were interessted in selling or leasing our land.We have 74.8 acres and they just want 18.8 acres.The land is in Woods County,Oklahoma, Section 18,Township 28N,Range 13W.
Chesapeake gave us an offer of $200 per acre for 5 years with 3/16th royalties.The lease shall remain in force for a term of 5 years from the date(herein called primary term)and so long thereafter as oil or gas,or either of them,is produced from said land or lands pooled therewith.
We would like to know if this is a good deal or if we might be able to get more out of this.
I have been living in Germany the past 24 years and cant do to much from here.Hope You can help Me.

Answer
George, if your interests are in the west 1/2 of the section, then you may have been "force-pooled" already, in which case it is too late to lease. This is not really a bad thing however. It just meanst that the lessee applied to the State to "force" you to lease so the company could get the well drilled because you didn't respond in time to the notice that was (hopefully) sent you.

If you were force pooled, you will receive a bonus just as if you'd been leased. Your "lease" in this case will expire much sooner than the five-year lease you were asked to sign. A pooling order normally lasts no more than a year, at which time it usually expires unless a well has been drilled.

I do know that they are planning to drill a well here within the next year (they have the permit already.) If they drill a well, and it produces, the pooling order also states the royalty rate at which you will be paid. It's liklely a 1/8th royalty.

If your minerals are in the east half of the section, then you may still be able to lease. I would say that $200 is about the best you're going to get there however, as Chesapeake is the only company leasing there right now. I would NOT agree to a five-year lease however, since three years is more than enough time for them to commence a well. You don't want your minerals tied up that long if you can help it. They may be worth more to someone else after three years.

Take the $200, but see if they'll give you a three-year lease instead; even if it means a bit less money. You may also want to ask that a "depth" clause and a "no deductions" clause be written into the lease you actually are going to sign. These are protective clauses for you and Chesapeake should agree to them. For more info on these clauses, see some of my previous answers to people as I discuss them fairly frequently.

Hope this helps you out some.

Frederick Scott CMM