Drilling unit vs production unit

There is an interesting discussion on the Ohio Landowners page re. drilling units and production units. If I understand it correctly, it is possible to be in a producing drilling unit and still not be paid royalties because you are not in a subset called the production unit. This is new to me as I thought that if your land was in a drilling unit, you benefitted from all of the wells drilled in that unit. Is this new or did I miss something in discussions about the potential benefits of being in a larger unit?

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Permalink Reply by Kathleen on March 20, 2014 at 3:21am
They can easily do it. They would just make each unit 160 acres or less.
This land is HBP now so that helps the co., too.
They would prefer to have one well hold 640-1280, but most well platts are around that 160 number.
Permalink Reply by Boone on March 20, 2014 at 3:50am

Hi Kathleen, Did they put you in a 160 unit when you wouldnt sign the 1280 amendment?  Just trying to get an idea of the probability they reduce the unit size versus just go around you.  I'm sure a lot of it is a case by case basis. 

Permalink Reply by Kathleen on March 20, 2014 at 4:02am
Hi,

My lease called for a unit no bigger then 640, so part of my land got into a 510+- unit.
They kept going on and on how much they wanted me to go bigger. I'm sure they did since they can could have used one well to hold 1280 acres if everyone else allowed that in their lease but me.
I'm not sure if I stopped the unit from being bigger or others also wouldn't sign.
Permalink Reply by Kathleen on March 20, 2014 at 4:03am
The well platt, holding the 510+- unit is under 160 acres.
Permalink Reply by The Hiker on March 20, 2014 at 5:32am

Kathleen from 2 hrs ago:  Then why offer the landowner anything at all?   Why spend $ when they don't have to?  The land is already HBP.

Permalink Reply by Booger on March 20, 2014 at 10:43am

some plots in the 1280 may not be HBP and/or some leases in the 1280 may have pugh clauses -  so even if you are HBP with a shallow at 160, they still want you to ammend...they need everyone to ammend because getting everyone to ammend to 1280 gives them much more flexibility to HBP all 1280 with a single bore....makes it easy for them.......and the lease becomes worth more if they are selling.

Permalink Reply by Bill Barnaby on March 20, 2014 at 8:51am

So, really the Best case scenario is your in a monster well, with 160 acre unit.... you would be getting paid massive royalties.

Permalink Reply by The Hiker on March 20, 2014 at 11:59am

I'll check on the "multiple 160 acre units within a piece of property" with 160 acre max pool size as Kathleen suggests is legal.  It still sounds crazy, but hey, I've seen some crazy stuff in the past few years......

Permalink Reply by The Hiker on March 21, 2014 at 8:43am

Just got the word back from my expert w/r to Kathleen's assertion that the gasco's can get around the 160 acre maximum pool size by using separate units.  NOT TRUE.

Permalink Reply by Kathleen on March 21, 2014 at 8:56am
Hi,

I stand by this. They can make as many small units as they want, as long as it complies with the lease language, its just not cost effective.
Who said this is not legal and how did they come to that reasoning if the unit size does not go over the agreed size in the lease?
Permalink Reply by The Hiker on March 21, 2014 at 10:40am

If your lease stipulates 160 acre maximum pool size, then that's it.  The gascos cannot split your land in half and assign one half to a unit with 160 acres and the other half to another unit of 160 acres.   This ploy would mean your acreage would be pooled with 320 acres, which would violate the 160 acre maximum pool size in the lease language.   Per Dale Arnold, well known leasing expert with Ohio Farm Bureau.   This is the reason people with old 160 acre maximum pooling clauses are being offered money to amend them to allow larger pools....pools large enough to allow the drilling of multiple Utica wells from a single pad.   Sure, if they can obtain an amendment increasing the pool size to 1280 acres, and drill one well, then they buy themselves some time to finish the job without having to pay a second lease payment to some of the landowners in the pool.....if the landowners are not HBP.  If HBP, there is no clock ticking.  It is to the advantage of the landowner to limit the pool size as much as plausible if he wants to preserve the chance of a second lease payment, and still give the gasco a pool size large enough to develop.  Not too big, not too small.   Too small, the company will not develop.   Too big, the landowner may get screwed.

Permalink Reply by Kathleen on March 21, 2014 at 1:31pm
The gascos cannot split your land in half and assign one half to a unit with 160 acres and the other half to another unit of 160 acres. This ploy would mean your acreage would be pooled with 320 acres, which would violate the 160 acre maximum pool size in the lease

Correct. I never thought they could. If a lease states max 160 acres, unless amended, they cannot be placed in a unit larger then that, even if some land is in one 160 acre unit and some is in another, since, of course, now their land would be in a larger unit then the lease calls for.
They would just make individual 160 acre units. Again, this is not preferred but can be done especially if the one lease holds a lot of land/minerals. If someone owns 100 acres and their lease stated max 160, a well of 160 mineral acres adding 60 acres from another landowner could easily be done.
To not amend a 160 acre unit could really hurt a mineral owner right now with all the newer leases of 640-1280 that could expire. The gas co., would go to them first, before trying to figure out exactly how to conform to these small 160 unit leases.
To say this can't happen is wrong IMO.
In time, maybe a long time from now, these smaller 160 acre leases may win and get the bonuses or % the mineral owners imo deserve upped to at least gross. Or they could miss the boat completely.

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