How a production unit is formed?

Hi,
I have a question I know others also don't know the answer too but I'm not sure I'm going to ask it correctly but I'll try.
In a lot of the leases it says 640 acre production unit but most of the wells drilled so far only have one to a few horizontals showing on the odnr which makes them less than the max 640 production unit.
So how does this work if at the time the first well is drilled there is only say 150 acres in that leg. Do only the owners under that leg get royalties? To me that answer is yes but here's where I'm real confused. If a second leg is drilled with another 150 acres off the same pad do the first leg mineral rights owners now become apart of a 300 acre unit and so on until they hit the 640 acre production unit?
If so than didn't the first mineral rights owner benefit the most while the last leg(well off the same pad) mineral rights owners lose out?
Or does the drilling companies make a big circle around the pad where they would know who else in time wiould be In the completed production unit and those royalty owners benefit from the first well drilled (leg) of 150 acres out of 640?
I swear I can't find this answer and everyone I ask said they all wished they knew too :0)
Thank you
Kath

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Permalink Reply by Clinton44 on March 31, 2012 at 2:39pm

Hi Little Cougar the question regarding the DPU's was for Kathleen , but I understand what you are refering to regarding the modifications of the unit sizes when they file the DPU's they also reserve the right to alter unit sizes

Permalink Reply by Little Cougar on March 31, 2012 at 2:41pm

Sorry...didn't mean to butt in...

Good luck...

lc

Permalink Reply by Clinton44 on March 31, 2012 at 2:50pm

Hi LC Didn't mean to offend,  just was trying to keep everbodies question straight in my mind. Sorry.. 

Permalink Reply by William Elsey on May 14, 2012 at 2:18am
Do you know if I can get this same information in WV? I am involved in 2 recently fracked wells but there has been no communication from EWT. I do have copies of the drilling plans but not a DPU.

Thank you, Bill
Permalink Reply by Clinton44 on May 14, 2012 at 2:29am

If they have to file DPU's in WV they should be filed in the county courthouse in the county where the well is located, but as I mught have stated in this thread or another sometimes they are not very speedy in DPU filings.

We have been in a producing unit since Nov. of 2011 still no DPU filed, I did however manage to get someone at the drillers venture partner to say they would mail me one, have not seen it yet...

Permalink Reply by Brian on March 31, 2012 at 1:28pm

I have a question on deductions. Maybe there are some people here that are having to deal with it first hand, and can answer from the case they are a part of.

But if you sign a lease that allows deductions, is there also an addendum that details how much can be deducted? What prevents them from making enough deductions to take everything that you get in royalties?  I know in PA the state minimum is 1/8 or 12.5%. Is that a minimum before or after the deductions? Can they make deductions that would take it below this state minimum? Is that legal?

Are there any laws that restrict how much these companies can deduct from us?

Thank you

Permalink Reply by Little Cougar on March 31, 2012 at 2:11pm

No way can they make the deductions so high that you will not receive royalties...however, royalties can be affected by the way they pay them based on gross or net.  Other members can explain that better then me...but there is some protection by law that will not allow them make the deductions so high as not to pay you your negotiated royalties or the minimum as mandated by state law at least here in PA.

Permalink Reply by Clinton44 on March 31, 2012 at 2:26pm

Hi Brian, This is something that is also dependent on the terms of your lease as far as what deductions are shared by you and whether they come off the gross or the net..  For instance our lease has a clause in it that states we are responsible for a proportionate share of the gathering charges which are charged by midstream pipeline companies that take the gas from the well head downstream to the point of sale.

Only can take deductions that are spelled out in the terms of the lease.

Permalink Reply by Brian on March 31, 2012 at 2:34pm

Can you explain the difference between the gross and net then? I have heard this explained so many different ways. Does net have deductions and gross does not? Or is it where the gas is paid for at? Like the value at the wellhead or after processes to enhance the value of the gas?

Thank you for your help.

Permalink Reply by Clinton44 on March 31, 2012 at 2:47pm

Our lease has a clause that basically states anything the company does to the gas on site is at their expense, once it leaves the site is when the propotionate sharing of expenses starts, Our royalty is paid at the well head free and clear of the on site costs in other words that is where the gross comes in, (net would be less any costs outlined in your lease) and after the sale whomever buys the gas I would think would be responsible for enhancement costs??? Not sure...

The only deductions I have seen so far were the gathering costs I mentioned in previous post

Permalink Reply by Kathleen on April 1, 2012 at 12:57am
Brian the easiest way to remember gross to net is when you get hired they tell you the gross amount you will make. After your first pay check the amount is lower after deductions which is net.
Gross: no deductions
Net: with deductions
I'm hoping as many people as possible get gross. To many games the gas company can play concerning deductions.
0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on March 31, 2012 at 3:09pm

This is something I have been concerned with Brian...cause the market enhancement clause is missing the word "proportionate' and on our contract it indicates that the Lessor may pay ALL the costs of enhancement' without defining what enhancment is or what it costs.  Some with that clause states the Lessor will pay proportionate costs of enhancement... but our contract clearly does not have the word 'proportionate' in the MktEnhClause.

I am concerned that the enhancement cost could eat up the royalties and then some...perhaps even leaving the Lessor owing cause of the wording of this particular clause...yet we have a 'gross royalty ' contract.  It would be kind of Pa. law to interpret this better....as it really should be that the Lessor receives no less than 12.5% regardless if they have net or gross royalty agreements.  That way if a Lessor being ignorant signed one of the famous 'trick' clauses that the oil companies have sent forth...then they wouldn't be at such a great loss beyond whatever loss they have encountered.

 

Kathleen, I was told that if the public records have your property listed in the unit then whatever land is unitized in the unit and listed is what the royalties would be based on at the royalty amount percentage of your lease contract.    I must say though that the unitization clause needs well defined...as the one I have on the lease has that the Lessee can modify even the modification of payment?   and I haven't figure out why they have a modification of payment? meaning what?

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