How does a driller or oil company determine how much of your land will be included in a drilling unit? For example: Lets say you have 100 acres and they set a rig nearby. they determine that the horizontal drilling activity will reach your property. In this example let's say the unit is limited to 640 acres. If the horizontal bit reaches an area under any of your 100 acres, are all 100 acres now included in the drilling unit? Or is there some way they determine that a portion will be "drained" and just that amount is included in the drilling unit? thanks in advance
They draw units to maximize the amount that is going to be HBP. So putting 5 of your 100 acres into a unit holds that whole 100 (assuming it's all on one lease with no Pugh clause).
thanks Mr. Grayson.
Can you clarify one thing. you said "holds that whole 100". but does that mean that royalty will be calculated based on 100 also or just HBP? thanks so much!
you will get royalties only on 5 acres out of the 640 acre unit.
The remaining 95 acres can be HBP if you lease doesn't have a good pugh clause,
Seems to me the oil company would want to maximize the amount of land held by production, while limiting the amount of land included in the royalty calculation. That said, would they pay on 100 in this example??
In this example they'd do as Mr. Martinelli said, pay for only the five acres. As far as limiting royalty calculation that never enters the equation unless there is a royalty disparity, i.e. half of the unit is getting 12.5% and the other half is getting 20%. In that case the company would want to include less of the land that has a higher royalty in favor of those with a lower one.
The amount of your acreage in a unit is determined by the drill path layout for a number of horizontal wells. Usually a 640 acre unit will have 8-10 wells (when completed) to recover all the gas within that unit. The wells are generally in the mid portion of the unit with 4-5 running NW & 4-5 running SE. You could have all 100 acres in the unit or just a couple depending how the unit is laid out. If you have only a couple, then chances are the balance of your acreage will be in the next unit that will run contiguous to the first. The gas company may initially only drill 3 or 4 wells that may run only to the north end of the unit, and even if your property lies in the southern portion of the unit, you will share all royalties based on your percentage and acreage within that unit. You will continue to receive royalties until all wells have been drilled within that unit to recover all underlying gas. This is their standard procedure if infrastructure is in place to transfer the gas, otherwise they may only drill one well ( usually vertical) and cap it until infrastructure is in place and their is a demand for the gas.