Drill unit or production unit?

This may be a dumb question but I have asked several people and have gotten varying answers......Here it is.....In PA,if a well is permitted for 6 legs, and I am in the 1st leg of the well that is 512 acres. Am i paid for my share of just this leg? Or are all the property owners of all 6 legs, Im guessing roughly 3500 acres, also paid for this first leg. And then of course I would be paid for my share of the other 5 legs....Is one leg a drill unit and the whole thing a production unit? how does this work?

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Permalink Reply by Golddigger on August 31, 2013 at 10:37pm

One unit can consist of 500, 600, or even 1200 acres, whatever has been designated by the gas company. Never heard of a 3500 acre unit! If you are included in that unit you will receive royalties from each leg that is drilled within that unit. If there are 6 wells (legs, same thing) you will receive royalties based on your decimal interests, (amount of acreage you own) in that unit. Each well production amount will be listed separately on your monthly statement. It doesn't matter where the legs are drilled within the unit, all land owners share the royalties based on their decimal interest, (acreage they own) within the unit.

Permalink Reply by Clinton44 on August 31, 2013 at 10:42pm

Hi Gas Heir,

Also be advised in PA sometimes units are split. We have 14 acres in a split unit, it is split into a North and a South unit each with three wells and we only share in the royalties from the three wells in the South unit. Total acreage in each split is around 550 acres. 

Permalink Reply by Trapper on September 1, 2013 at 8:37am

How is the landowner with the pad compensated? Does he share in both units as comp for hosting someone elses wellhead(s)?

I would rather share in all 6 as opposed to just 3. Wells right next to one another can have a broad difference in output. Best to get a cut of the overall average I would think. Unless , of course , your three are boomers compared to the rest! LOL

Permalink Reply by Clinton44 on September 1, 2013 at 9:51am

Sometimes it is better to share in fewer wells, Three wells in a 550 acre unit may yeild better than six wells in a 1200 acre unit the royalties are not as diluted.

We have friends in Tioga that were offered $15,000.00 for a pad fee. In our area however most of the pads are on state owned land and I do not know what the pad fees paid to the state are.

Permalink Reply by Trapper on September 1, 2013 at 10:11am

Depends on their output. You might get 3 wells that put out half as much as the other three and end up with half the royalties as opposed to a 6 way split which would be 25% higher cut for you. It's a crapshoot I guess. Any royalty is better than none though. Can't wait for the day! My Shell lease would pay me $15,000 for a pad too. I have some stripmined land that would be fine for that. But we never know their plans until they make a move. Not much state land in my area , except for a few gamelands here and there. Glad to hear you are in a unit. That is the goal for all of us!

Permalink Reply by Clinton44 on September 1, 2013 at 10:21am

Yes I agree on your well output theory, and yes its pretty much a crap shoot. We are fortunate we are actually in two seperate units nine producing wells total, with one of the wells outpacing the others in production, the other eight are good producers as well.

Trapper, good luck hopefully things work out and Shell drills your lease!! 

Permalink Reply by Kathleen on September 1, 2013 at 10:56am
One thing I noticed not mentioned yet, is what does your lease say when it comes to unit size.
If your lease states only 640-1280 acre unit, than that's the largest unit you could be part of without changing the wording.
Permalink Reply by Clinton44 on September 1, 2013 at 11:10am

Hi Kathleen,

Our lease has no acreage limitations for unit sizes we signed before anyone knew that the Marcellus was going to be the next big thing... We did get a decent royalty percentage so we are doing well,but not as good we could have done but there is no use crying over spilled milk as they say.

Permalink Reply by Todd on December 18, 2013 at 10:34pm
Clinton44,
Where is your property located ?
Thanks, Todd
Permalink Reply by Gas heir on September 1, 2013 at 3:01pm
I just looked at the lease, it says oil unit cannot be larger than 160 acres and gas unit cannot exceed 640 acres. We are held by production from an old shallow well lease. So I'm guessing they will treat each leg as a separate unit?
Permalink Reply by Kathleen on September 1, 2013 at 4:30pm
Have you received a Declaration of a pooled unit, yet?
I would imagine you're due a phone call, if you haven't received one yet from the lease holder asking you to up the oil acreage.
Your gas acreage is big enough for them not to bother you (they still most liked will though), but 160 is small.
If you dug your heels in, than yes you could not be in a bigger pooled unit then 160 acres. That's nice for the 1st few checks, but wouldn't it be nice to be in more than one well?
If they really are drilling all 6 wells, I would get an attorney and sign to allow a bigger unit.
If they contact you, do not just allow it without having it looked at 1st by an attorney. There are reports of the oil and gas co., using that opening to add a few choice words that changes your lease in ways you did not expect.
I heard of a tiny change that took a gross to a net lease. Be careful. It most likely would not happen, but its not worth chancing it.
Permalink Reply by Robert Matthews on December 19, 2013 at 8:25am

Hello Kathleen,  I just looked at my lease last night and it says for an oil well no more than 80 acres and 640 for a gas production unit.  I am in Ross twp Jefferson county Ohio.  I did receive a declaration of a polled unit and is right at 500 acres.  is there a difference between the wells they drilled and an oil well?  when i bought the property it was HBP with a lease by Mason Dixon energy.  My property was included with 4,800 other acres so I did not get any bonus money. 

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