Pooling is the process of combining the interests of two or more tracts in the same spacing unit. The area is called a pool, or a unit. Pooling provides benefits to the operator by uniting all landowners’ interests in one common pool under one drilling unit and utilizing one or more common underground geological reservoirs/formations, commonly referred to as a “common sources of supply” by the Oklahoma Corporation Commission (“OCC”). Force Pooling in Oklahoma is regulated by the Oklahoma Corporation Commission (OCC). The primary purpose of pooling is to develop and operate a given formation in order to recover the greatest amount of hydrocarbons that can reasonably be produced, and also to achieve equity among the interest owners by permitting each owner to recover a fair share of hydrocarbons (or proceeds) therefrom. There are several types of pooled units – voluntary pooled units, forced pooled units, drilling units, working interest units, enhanced recovery units, and specially defined units in lease agreements.Pooling Application Rules
- Together with the pooling notice of hearing, the pooling application must be sent by restricted mail requiring a signature proving receipt no later than fifteen days (calendar days) prior to the hearing.
- If the applicant anticipates that some other party will be designated the well operator, the application must state so.
- Relief sought – pooling
- Legal description of the pooled spacing unit
- Parties –Applicant and the names and addresses of the respondents, Exhibit “A”
- Common sources of supply being pooled, spacing unit, and spacing order number
- A statement that the applicant has the right to drill
The statute giving authority for pooling Title 2 O.S.A. § 87.1
Signed by attorney for applicant
Options if you are subject to a Pooling Application
If you have received a Pooling Application and a Notice of Hearing, the Application will describe what the applicant is requesting from the Corporation Commission, which is typically to pool interest in a drilling and spacing unit restricted to specific common sources of supply.
The Notice of Inquiry will provide you with the date, time, and place of the hearing. Respondents to a Pooling Request may oppose it for a variety of reasons; however, such protests must be lodged or disclosed prior to the scheduled hearing..
If your protest is not announced by the time the hearing takes place, your interest will be subject to the Pooling Order once it is entered.
THE LEGAL EFFECTS OF FORCED POOLING
The “Transfer” of Interests
A pooling order generally specifies that within five or ten days following the election period, a person electing to participate in the well will be required to pay the operator its proportionate part of the estimated completed cost for such well as determined at the hearing and set forth in the order. By the terms of the order, failure to timely pay will be deemed revocation of an election to participate and, instead, an election to take the cash bonus or other non-participating option specified in the order. Participating pooled parties normally have the right to make other financial arrangements acceptable to the operator. Typically, a major oil company or other financially responsible person will be permitted to sign an Authority for Expenditure and/or an acceptable
operating agreement in lieu of making a cash deposit. However, the operator need not permit a pooled party to execute an operating agreement, but may require participation under the pooling order.
The pros and cons of leasing versus being made subject to a forced pooling order:
If you choose to sign a lease, you will have the ability to negotiate more of the specifics of the usage of your minerals. You are in a position to get the oil and gas companies to agree to some conditions and special provisions. If you are subject to a Oklahoma forced pooling (as managed by the Oklahoma Corporation Commission), you’re not in a position to negotiate these details.
Second, you can negotiate bonus and royalty costs. If you are subject to a forced pooling order, you’re given three options, being a combination of the prevailing prices in the surrounding areas, with no option to negotiate those prices. In the alternative, if you allow yourself to be subject to the OCC forced pooling order, the applicant is given a shorter time within which it has to commence operations. The average lease is valid for three to five years, whereas the average pooling order is valid for six months to a year, both of which extend after production has been initiated. This keeps your minerals under contract for a shorter period of time.
A pooling order typically provides for one of the following three options:
- Participate and become a working interest owner. This means the mineral owner, Farmer Brown in the above example, will be charged his proportionate share of the well costs before receiving any monies from production;
- Take one of the fair market equivalents (typically a cash plus 1/8th, 3/16 or 1/5 royalty); or
- Take a “no cash” 1/4 royalty option.