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Permalink Reply by Heidlebergman on September 9, 2015 at 3:30pm

No there is no maximin or minimum set by the state. Most leases contain language that would set a max though. In order to unitize 640 acres...every lease contained inside of that drainage buffer has to contain language allowing for 640 acres. The same applies for 1280 Acres...320, 160 and so on. In my opinion the larger the unit you are in the better it is for both the company and the royalty owner. if you wish for me to elaborate I can...

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Permalink Reply by Heidlebergman on September 9, 2015 at 3:35pm

Historically in WV for the deeper plays in the Oriskany, Huntersville Chert, and Trenton Black River...companies would unitize the land around the wells because the drainage was so large...they had to protect their investment.

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Permalink Reply by Leo S on September 11, 2015 at 7:02am

Thank you for your reply.  I would like to know about why larger units are better.  My thought was a smaller unit was preferred.  For example, my 90 acres in a 450 acre unit provides a much larger decimal interest than my 90 acres in a 900 acre unit.  If two wells were actually brought online, then I am realizing a much larger revenue stream, in a more early time frame, in a 450 acre unit.  If the unit size were 900 acres, the royalty amounts are smaller, and there is more uncertainty about the future because I would be required to wait whatever time period is required until another, if any, well was produced.

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Permalink Reply by Heidlebergman on September 11, 2015 at 7:34am

This is why I feel a larger unit is better. On average you are looking at unit size of .02 acres for every foot of lateral. The larger the unit the longer the laterals...the more laterals you will have. 450 acres will be about 3 8,000 foot laterals. A 900 acre unit would be 6 8,000 foot laterals. DO NOT QUOTE ME on this but...the Marcellus reserves are going for about 1.5 bcf per 1,000 feet of lateral (depending upon your region). You are right that your 90 acres in a 450 acre unit provides twice decimal interest, but the 900 acre unit should produce twice the gas. Here's the kicker, by far the most important factor determining your royalty check is how well the company drills, fracs, markets, and produces the gas..kind of out of your control. In my opinion you need to hedge your investments...broaden your portfolio. This is my educated guess, but I would say anywhere from 10 to 20 per cent of the wells drilled have a problem. Either a bad frac job, drilling problem, unexpected fracture or fault in the rock, bad cement job, bacteria in the water line...I could go on all day...if you restrict your unit size to one well...you have a 20% chance of not getting your full value out of your royalties...or worste no value. If you are getting paid proportionally (a key term) on 6 wells the one well the company screws up doesn't hurt as bad...you are still getting paid on 5 wells. To be honest by restricting your unit size you are only hurting yourself. Maybe the one well unit is the one the company hit perfect...maybe it's not...good luck predicting it. These companies are trying to maximize their acreage so they're not going to unitize acreage that's not being drained...unless there's specific language in the lease to do so...that could have unintended consequences. If your tract of land is in a river bend, or close to a municipality you could run the risk of having acreage stranded...maybe I should consult...hmmm.

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Permalink Reply by Leo S on September 14, 2015 at 11:24am

Thank you!  I appreciate your great reply.  Very helpful and some nice thoughts to consider.  I am thinking the laterals in a 450 unit can be the same length as the laterals in a 900 acre unit.  The length of the unit just has to be the same.  The width might be different and the total number of wells less.  Also, if the 450 acre unit drilled two successful wells, the royalty income is received today, and can be reinvested.  There is less uncertainty with regards to when future wells might come online.  It seems like a preference can be made in regards to unit size.

Our lease specifies all our land in only one unit.  However, the O &G split our land into two units, which violates our lease.  Now I am trying to understand what I should do.  we have not signed the division order.  We wanted a higher royalty income sooner, rather than later, and do not like having the smaller decimal interest.  We are challenging that our land was split into two units when our lease says only one unit. Two wells were drilled, and both drain from our land.  Still waiting for the O & G to reply (I won't specify the company)

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Permalink Reply by Heidlebergman on September 17, 2015 at 1:53pm

Sorry for the delay responding.  I think I know what is happening.  I have seen division orders for units with a total of over a thousand heirs inside the unit.  That means that all 1,000 heirs have to have language specific in the lease to allow for a maximum unitization clause.  There is no way you are going to get all 1,000 heirs to agree to the same clauses.  The companies have to get creative.  Thus... one well units, which as I said can be risky, or two one well units, which is less risky but serve the same purpose as a two lateral unit.  Ask for a copy of the units declaration...both of them.  They are of the public domain and should have been recorded in the courthouse.  If both units butt up against each other and you have no acreage that has not been unitized...to be honest I would not worry about it.  If you have stranded acreage then I would ask to amend the lease.  Have the company pay you a pugh clause rental for the stranded acreage...and amend your lease so that the company only has rights to the producing formation...the Marcellus.  The company would have to surrender all formations above the Marcellus and below the top of the Onondaga...that is what I would do...they screwed up so make them pay for it...this way.

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