Pooling

Oklahoma law permits only one initial well in a drilling and spacing unit. Owners who want to propose a well must secure the commitment of other owners in the unit. Other owners must either agree to share in the well's expense, or lease or assign their working interest to the proposing owner in exchange for a royalty interest in future production. To propose a well, you would first attempt to reach agreement with all owners to lease their interest or participate with you in paying their proportionate part of the drilling and operating expense. Those who did not want to lease or participate could block the drilling unless there was some method to force them to participate or sell. That is the "forced pooling" process.

Forced pooling causes the proposed operator to search records in the county and other sources to determine all persons with the right to drill and locate them with their correct addresses. The application to pool is filed with OAP and the owners who have not leased are named as respondents, listed on Exhibit A. Notice is mailed and published giving the respondents notice of the time, place and purpose of the hearing, together with the requested pooled formation. At the hearing all persons who have a right to drill may appear and let their interest be known.

At the hearing, the Administrative Law Judge (ALJ) will insure the applicant has given the respondents proper notice, mailing and publication. The ALJ will inquire whether the applicant has made a good faith effort to bargain with the respondents prior to filing the pooling application and from testimony set the costs of drilling and completing the well. The ALJ will also inquire as to the fair market value of the mineral interests in the unit; that inquiry includes testimony on what was paid for leases in that unit and the eight surrounding units within the last year. Generally, the fair market value of the mineral interest is determined by consideration of open market transactions, impacting oil and gas rights, between willing buyers and willing sellers in the vicinity.

The unleased mineral owners are always entitled to retain the statutory one-eighth royalty, however, the fair market value for royalty often provides for a royalty percentage above the one-eighth. The fair market value consists of a cash bonus and royalty (percentage of revenue share on production). Frequently less cash and more overriding royalty combinations are found to be equivalents and alternates.

The ALJ requires the applicant to prepare a Pooling Order and submit it for review and signature of the ALJ and the full Commission. The operator must mail copies of the order to each respondent within three days. The order provides Respondents 20 days to either participate in the well or elect to take one of the fair market value alternatives. Payments to respondents of any cash consideration are required to be made within 30 to 35 days of the date of the order, depending on the recommendation made in the order.

The Pooling Order will contain other provisions, usually requiring the operator establish an escrow account for owners whose addresses are unknown or owners with title problems, provisions describing rules for future wells and limiting the time to drill to six months, longer if good cause is shown.

If any party objects to the pooling application, they will be able to present their case at the hearing and a report will issue recommending the case be granted or denied. That report can be appealed to the Referee who will issue a report recommending the report be approved or overturned or modified. This can also be appealed to the Commission en banc who will then grant or deny the case. Upon issuance of a Pooling Order from a protested application, it can be appealed to the Oklahoma Supreme Court.

Oklahoma's forced pooling process benefits operators, working interest partners, and mineral interest owners. It stimulates a competitive market for development of oil and gas, which results in revenues for investors and royalty owners.

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