Can anyone help me understand this? Will I get anything if I my 40 acres is part of a 300 hundred acre unit but the horizontal will not go under any of my acres? How should it be stated in a lease, if it is all possible, that your entire acreage be used for getting royalties. Or if there is only a small fraction of the horizontal going under is there a way to include the whole acreage? What would that wording be in an addendum? I do not understand the royalty part of a lease. Is it based solely on what fractional part of gas is extracted from your acreage? Thanks, I need to know what I am doing, I may be signing a lease soon..
I am not an expert on this, but the way I understand this is if you are included in a unit you will get royalities on your entire 40 acres whether the horizontal is under your land or not. You do not have to add an addendum....that's just the way it works.
That is not how the royalty portion works. You will only receive royalties for the proportinant share of the property that is being developed. There is not going to be a company that will pay you royalties on acreage that is not being produced. You can add a pugh clause that will only allow the company to hold acreage that is being produced but you will not get paid on all your acreage because it is in a unit. Some companies will not give this in their lease but it is what you should look to have added.
Thanks for your reply, Now I am even more confused. Will it or should it state on the lease what part of your acreage will be used for figuring royalties. Are you saying that If my property is part of a unit but the first horizontal is not under my acreage, then i get nothing? Can the lease then be held by production in the unit that is not creating royalty income for our acreage or will the lease expire after the primary term is up?
Me too!!! Jenny, if you go to PSU cooperative ext service web site and go to their royalty calculator you will see it explained exactly as I did to you. Click on tools. Then on PSU royalty calculator.
It says if there is 400 acres in a production unit and you own 100 acres of it you will be paid 25% of the royalties of that unit times your royalty lease rate. It doesn't matter if the horizontal is under your acreage or not. Not sure what other gentleman is geting at????
First it doesn't matter if the horizontal goes directly under your land. If you are in the unit you get paid for your amount of acreage that is in the unit (it may be all your leased acres, it may be half or something else) It depends how the unit is drawn. It does not matter which leg they drill first.
For Example: You sign a lease on 25 acres. When the unit is drawn up, only 18 acres of your leased land is placed into the production unit. You are considered in the unit. However you do not get paid royalties on all your 25 acres. You only get paid on the 18 acres in the production unit. If all 25 acres are in the production unit then yes you will get paid royalties on all 25 acres.
Hope this helps. What you really need to see is the production unit map. You can then see how much if any of your acreage will be in the unit.
OK, I think the confusion here is in assuming that the 40 acres of leased land in the original question is all in production unit or not. For my answer I assumed it was. Apparently Mr Whitt assumed it was not all included. If not all of the leased land is in the production unit then yes you only get royalities on the part that is included. That is also where the pugh clause comes into play.
But to answer the original question again....the horizontal DOES NOT have to be under your leased land that is in the production unit to get royalities. WHEW!!!!
If you are part of a group your entire acreage is considered covered, unless otherwise excluded in the wording of the contract. Also, make sure you don't sign a lease that puts you in too long of a holding period with excessive or endless contract option to drill at a later date in the future. Avoid a contract that requires the energy company to recover their investment before you receive royalties. My advice would be to get a lawyer from Texas with experience in the leasing of land to big oil and gas companies. Do not trust the judgement and inexperience of the lawyers jumping on the boat, you could potentially lose an enormous amount of money and give up rights not necessary.
I just listened to a Webinar from PSU on this and similar topics. They explained that the company developing the production unit will contact you about your inclusion. If you have not heard, then you are not in one. However (if you don't really trust the gas companies), I believe that the units are filed in your local County Recorder of Deeds office. Visit the Penn State web site and get some good information, including the "Webinars" that have already been held and can be watched. Visit: http://naturalgas.extension.psu.edu
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