No, I do not think that is true.
There must be a Production Unit filed at the Court house BEFORE any well is put into production.
Also, I want retract using the terminolgy "Final" Production Unit since Production Units can change size per the driller over time, therefore there is no such thing as a "final" PU.
Hi Utica, That is not quite true as least here in PA.. We are in two producing units one has a DPU filed, the other that has been in production with five wells since Nov. of 2011still does not have a DPU filed.
Called the driller about the missing DPU said they are still in process of getting it filed, courthouse confirmed that as well, said sometimes they get paperwork to be filed where notarized statements received from drilling partners in the ventures are over a year old...
"... Called the driller about the missing DPU said they are still in process of getting it filed, courthouse confirmed that as well ..."
So, the courthouse has confirmed that the driller has filed some PU paperwork but not all of the paperwork and therefore the courthouse cannot complete the process?
Per Penn State, College of Agriculture, "In PA, it is the drillers OPTION to file the Production Unit at the Recorders Office". HUH? That implies that Production Units are not required to be filed in PA? I will try to find what the Ohio Law is regarding, "Drillers being required to file the Pooling Units at the recorders office".
If the Pooling paperwork is not (legally) filed at the Recorders Office then how can you ever prove that you are receiving the Royalties that you are entitled too?
I agree... Thought there would be a system in place requiring a legally binding pooling agreement especially since most leases allow for them to change pooled unit dimensions at will.
The driller filed one DPU that we are in in a timely manner, however the one I stated as missing none of that paperwork is at recorders office still in drillers possesion.
The division orders that are issued and executed bind the company to pay the decimal percentage interest agreed upon in the order. So I assume if they change dimensions of drilling unit and cut you out or reduce your decimal interest new division orders would have to be executed.
So yes it would be a good idea to see what Ohio's regulations are regarding these paperwork issues...
3 producing wells in a 640 Acre PU is roughly the same royalties paid per acre as 6 producing wells in a 1,280 acre PU - no dilution in royalties paid per acre. The question is - What is CHPK's schedule to drill all 6 of the wells on the single 1,280 acre PU compared to the schedule for the 640 NW PU and 640 SE PU? Also, do you really want all wells producing now at $2/mcf or later at a potentially high $/mcf? The risk is, what if CHPK puts a single well on the 1,280 PU and holds-by-production? Maybe, just maybe, that is a financially smart move because the other 5 wells might be drilled later when Nat Gas Prices increase. Good for you and good for CHPK! Will CHPK wait until Nat Gas prices rise or not? Also, If all 6 wells are drilled this year then the majority of all royalties will paid within just 3 years (unless the well is severely choked down and it may be). Can that potentially huge increase in income be a tax issue for you? Would royalties spread over 5-7 years result in lower taxes for you?
Will CHPK drill one well now to hold the enire 1,280 acreage by production and then wait until NAT GAS prices rise? Then CHPK comes back and progressively drills the other 5 wells as prices rise? In this case HBP for a few years may be a good thing?
Do you need the money now in the next 2-3 years?
Then get into 640 PU, have all 3 wells drilled today and start production tomorrow.
Prefer a lower royalty amount but over a much longer period?
Then get into a 1,280 PU, have the wells drilled over time with progressive production.
But unfortunately we have little to no control over CHPK's drilling schedule.
And there is no easy answer, as your indivdual needs and tax situation are paramount.
In the Columbiana County and Carroll County area it does not appear that Chesapeake is putting only one lateral on the PU. CHPK is typically putting 3 laterals into the 640 PU's and 6 laterals into the 1,280 PU's. Why do that at these low Nat Gas prices? Are they going to severely choke back or shut-in the wells to reduce production until Nat Gas prices rise and then increase production? The cost of moving the rig back to a pad at a later date is not an insignificant cost.
Can we trust Chesapeake to do the right thing "maximize total royalties" for the landowner ?
Utica ........again thanks for your quick analytical response. As you say, all is out of our hands except the possible voluntary decision to amend our lease and join a larger PU.
My philosophy re income and taxes is pretty simple. Income earned today will most likely be at a lower tax rate than in the future, and the buying power of the dollar earned will continue to decline.
I agree with the other posts here which explain how drilling units work and how you are paid.
It might be worth mentioning, though, that here in Bradford County, PA, we are seeing instances of drilling unit "splitting". The units are split in half, generally N/S. I've only heard of this happening. It has not happened to me personally, and I hope it does not, because:
Generally this is not the greatest time to get drilled, gas prices being so low and all. If a unit is split, and if you are on the producing side of the split, it means you will be getting paid at today's lower gas prices, and not have the advantage of possibly selling gas in future, from the other side of the split, when we all hope prices might be higher. That's JMO, of course. Some folks probably would like to get money right away, even at today's low gas price, and even if it means giving up the possibility of getting more money later following (what we all hope will be) a recovery in gas prices.
I agree, Kathleen, sure can't go much lower they will be giving it away... They need to get busy compressing it and shipping it over seas to get higher prices!!
even if you are drilled now and receiving royalties based on today's NG price, when the cost goes up, so will your royalty check you are presently receiving for wells producing now. So it makes no difference when you are drilled, your royalty will be based on the current NG market price...your royalty check will always fluxuate from month to month because of that...
Hi Frank, Just curious how big were the units they split??