While a comprehensive outline of this area of the law is not possible in this limited space, it is possible to cover some basic areas which may assist mineral owners.
First, just because one owns the surface of a piece of property does not mean that he automatically owns all other rights to the use of the land. Many times the mineral rights have been “severed” from the surface rights. To determine the ownership of the mineral rights under your property, you may want to check the land records in the County Clerk’s office in the county where the land is located. An examination of the records will indicate whether you received the mineral rights in addition to the surface rights. If the ownership appears to be complex, you should contact an attorney regarding the preparation of a title opinion.
Second, subject to any restrictions on the title to the land and if there is no current lease on the land, a mineral owner may lease his interest to anybody he wishes. Usually, when property is leased for oil and gas activity the mineral owner (lessor) receives an initial bonus and the right to a royalty if the well produces oil, gas, or other minerals.
Note that a royalty is a fractional share, free of cost, of the production from the oil and gas well that is drilled upon the mineral owner’s property (or upon the spacing unit which includes the mineral owner’s property). Oklahoma law requires that the royalty be at least a 1/8 royalty.
Third, mineral owners often are confused about how their royalties are computed. A lease providing for a 1/8 royalty only gives the mineral owner (lessor) the right to receive a 1/8 share of the production attributable to the share or fraction that his interest bears in relationship to the “drilling unit” (sometimes called “spacing unit”) created by the Oklahoma Corporation Commission. For example, if a mineral owner owns 40 acres in an 80-acre “drilling” or “spacing” unit, under a 1/8-royalty lease, he is entitled to receive 1/8 of 40/80 of all oil and gas produced from the well.
A “drilling” or “spacing” unit is a geographical area created by the Oklahoma Corporation Commission that allows orderly drilling of oil and gas wells in order to prevent too many or too few wells in an area. Too many or too few wells would permit waste or not allow the maximum amount of oil and gas to be produced from a formation underlying the surface.
A mineral owner will often hear references to a division order. A division order is a document which is circulated, usually by the company that purchases the oil and gas from the drilling company, which sets out the amount of interest that the mineral owner owns in the unit. The signing of the division order allows the purchaser to disburse the revenues.
The Division Order should only be signed if the amount shown is correct. A mineral owner should consult with an attorney before signing a division order. Oil companies almost without exception include provisions in the division order which are advantageous to the oil company, and are not necessary, under Oklahoma law, to be agreed to by the mineral owner. An attorney can assist the mineral owner in striking the unnecessary and one-sided provisions usually included as “boiler-plate” language in a form division order.
It is often asked whether a person who owns only the surface can prevent an oil company from drilling on his property. Assuming all mineral owners are leased or pooled, an oil company may drill anywhere within the drilling unit, subject to some restrictions. Under the Oklahoma Surface Damages Act (52 Okla.Stat. Sections 318.2 through 318.9), the drilling company has an obligation to try to reach an agreement with the surface owner as to the amount of surface damages expected. If the amount cannot be satisfactorily negotiated, the oil company has the obligation to petition the district court for appointment of appraisers to make recommendations concerning the amount of damages. Once the oil company has petitioned for the appraisal of the property and posted a bond or letter of credit in the amount of $25,000.00, it is entitled to start drilling operations. However, there are limitations as to how close to a “habitable structure” a well operator may place a well or well equipment.
After the appraisal has been performed and filed with the court clerk, if there is no objection as to the amount, then the amount of the appraisal will be paid to the surface owner by the drilling company. However, both the surface owner and drilling company may object to the appraisal and ask for a jury trial on the matter.
Further, the drilling company is required to remove all unnecessary operating equipment and structures from the land upon which the well is located. The drilling company also is required to fill all pits that contain mud or salt water that are not needed for production purposes and return the surface to the original condition as much as possible.