Do you have mineral interests under wells that are producing little to no value? You may already know how valuable your minerals are. Perhaps they’ve been passed down through generations, or maybe you recently purchased them. Either way, you expect those minerals to provide real income. Unfortunately, few things diminish the value of your mineral rights more than being held by an old, noncommercial well.
When your minerals are tied up by a lease connected to an unproductive or marginal well, you are often losing out on potential income. The purpose of an oil and gas lease is to derive value from your mineral interests through extraction and sale of hydrocarbons. You receive value through lease bonuses and royalty payments. But when an operator allows a well to continue “producing” at minimal levels simply to hold the lease, your minerals are effectively locked away, earning little to nothing for you while someone else retains control.
Why would an operator continue to produce a well even when the cost of doing so exceeds the revenue generated? The answer is multifaceted. First, the operator often receives an “administrative” fee from the non-operating working interest owners simply for being the operator. This is a flat fee that is paid regardless of whether the well is making money. You, the royalty owner, do not have to pay this fee, but you don’t get any benefit from it either.
The second reason is more important. Both the operator and the non-operating working interest owners get to hold onto your lease so long as the well is “producing”. They hold your lease in order to obtain the benefit of future development from unexplored formations holding your lease.
If another company comes along and wants to lease your acreage in order to drill to a different formation, you do not get the lease bonus. Instead it goes to the operator and/or working interest owners holding the lease by virture of the old well. This transaction takes place through an oil and gas lease assignment, usually without the mineral owners’ knowledge. You do not receive any part of that bonus, and in most situations, you do not even know that the transaction has taken place.
Your family owns 80 acres of minerals in Section 15-16N-17W. In 1995, your father leased these minerals to Blackacre Production at a 1/8th royalty, which was far more common at the time. Blackacre drilled the Pitiful No 1 Well in 1998 and it began producing.
The Pitiful Well produced well for a few years, but by 2010 it barely makes enough for you to get one check a year. Still Blackacre did not plug and abandon the well. It continued to produce the well even though it was not making a profit. Then in 2025, Whiteacre Resources comes along and wants to drill the Barnburner No 1 Well on your 80 acres. Does Whiteacre offer you a new oil and gas lease at the current royalty rate of 3/16th, 1/5th or better? No, they do not. Instead, they make a deal to pay Blackacre for an “assignment” of a portion of your 1995 lease. Whiteacre pays Blackacre the “bonus” on your 80 acres, and when Whiteacre drills the Barnburner No 1, you continue to receive royalties at the old 1/8th royalty.
At Graft & Walraven, our Oil and Gas Law and Litigation Team acts quickly to identify these situations and release mineral owners from unproductive leases. Our attorneys investigate the production history, analyze whether wells meet Oklahoma’s legal standards for commercial production, and, when appropriate, file lease cancellation actions to free your minerals for new opportunities.
Lease cancellation is often a race against time. If you wait too long, the company holding your lease may sell its interest, known as a “farm-out”, to another operator. In that case, the bonus that should have gone to you goes to someone else instead. Our team moves fast to stop farm-outs, cancel stale leases, and secure new, profitable agreements that return value to your family.
With offices in Clinton, Weatherford, and Oklahoma City, our firm serves clients throughout Oklahoma. Whether you are responding to a recent offer or exploring the possibility of selling, our team will walk you through every step and ensure your rights are fully protected.
If you have received an offer to sell your minerals, contact us before signing any documents. A quick review from our Oil and Gas Team could prevent costly mistakes and help you secure the best possible value for your family’s minerals.