When the mind is confused, its instinct is to say "no." People struggle to agree with things that they don't understand, and when it comes to dealing with mineral rights and all the legal jargon that comes with it, there can be a lot of confusion.
Details of Forced Pooling
Oil and gas companies can legally tap into mineral resources that landowners own without permission. This is done by securing a lease to drill on a neighboring land, which can drain both landowners and their neighbor's minerals with one wellbore.
This can't happen without the mineral rights owner being notified first. However, in some states, the notice is required to be issued by mail just 15 days before the hearing—which can leave people scrambling for answers.
But what if they object? Unfortunately, oil and gas companies have a means of refuting.
How Minerals Can Be Taken Without Permission by Oil and Gas Companies
In order for an oil and gas company to drill a well, it must propose a pooling unit and apply for a permit. If approved, the oil and gas operating company can begin drilling the well. With this action, the group of lands within the pooling unit are drained into a respective wellbore without even having to physically cross a piece of land.
The landman from the oil company provides lease offers to everyone who has a stake in the mineral interests typically 15-45 days prior to applying for the permit. Should the landman reach the threshold percentage of owners to execute oil and gas leases, then he can force the holdouts (landowners who say "no") to participate by going to the land commission with a forced pooling proposal.
That means minerals will be extracted with or without permission. Landowners will be invited to a hearing where a commission will make a decision, but keep in mind that this commission has to make decisions on competing interests. Their objection holds as much weight as other stakeholders, and if a critical mass wants to go forward, they could lose out.
Options for Mineral Rights Owners
- Join the Party: Landowners agree to voluntarily pool and pay their share of drilling costs. Mineral rights owners will take on liability but have a higher percentage of profits if the well booms.
- Lease or Sell: Sell their mineral rights to the landman or another party for a lump sum of cash.
- Be force Pooled: If mineral rights owners do nothing or object, they will be force-pooled into a risk-averse category with the party moving forward without them.
Laws on forced pooling are stacked in the oil and gas company's favor. State governments profit from these endeavors.
Negotiating in these scenarios can be tough. Hiring a professional can keep mineral rights owners abreast of the dynamics of the situation can help them to get the full amount of what they deserve.
About Adam Ferrari
Adam Ferrari is the founder of the mineral acquisitions company Ferrari Energy. He is a chemical engineer by degree and is an accomplished petroleum engineer by profession. He also has experience in the financial sector through his work at an investment banking firm. Under his leadership, his company has supported numerous charitable organizations, including St. Jude Children's Hospital, Freedom Service Dogs, Denver Rescue Mission, Coats for Colorado, and Next Steps of Chicago.