How are royalities paid

So if I own 50 acreas mineral rights and find out I'm in the production unit do I get paid on all 50 acreas or just the part the well touched. Very confused and each person tells me something different.

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Permalink Reply by Clinton44 on April 6, 2014 at 3:32pm

It depends on how your lease is worded. Unless you have a pugh clause saying that all of your acreage must be in the unit. Most are not that lucky unless they had a good lawyer from the start....

Permalink Reply by Philip Brutz on April 7, 2014 at 1:12am

What is a "Pugh Clause"?:

Written by: Attorney Dale Tice

For most Pennsylvania landowners who have signed an oil and gas lease, the possibility of receiving royalties sounds exciting. As landowners see drilling development approaching their property, the potential royalties seem ever more real. When a landowner receives notification that her land has been included in a pooled production unit, these life-changing royalties seem just around the corner.

Imagine the landowner's dismay when she reads the Declaration of Pooling and Unitization and realizes that her property has been "clipped" and that and only a small portion of her land has been included in the production unit. Unfortunately, this is the reality for many Pennsylvania property owners.

The gas leases used by the companies drilling in Pennsylvania allow the gas company to combine multiple properties into a pooled production unit. The landowners in the unit will share in the royalties from wells drilled based on their proportional ownership of the unit. While some production units may follow property boundaries, in most cases the unit is in the form of a rectangle with the boundaries of the unit not following property lines. Although the landowner will only receive royalties for the portion of the land included in the unit, the entire property is extended into the secondary term of the lease and held by production. For a landowner with only a small portion of her land in a production unit this is not a good outcome.

The solution to this problem is a Pugh Clause. Usually added to the lease as an addendum, the pugh clause provides that at the end of the primary term (typically five years) the lease will terminate as to any acreage outside of a production unit. This allows the landowner to sign a new lease for the property not included in the unit at the end of the five year primary term. The cash bonus received for signing the new lease provides compensation to the landowner for the property not included in the unit.

Naturally, the gas companies don't want to lose leased acreage and won't offer a pugh clause to landowners signing a gas lease. However, this is an important provision that should always be requested in gas lease negotiations.

Landowners who have signed a lease without a pugh clause and find that their property has been "clipped" can take comfort from the accelerating pace of development in the Marcellus shale. Over time it is likely that additional production units will be formed including the acreage left out initially. However, landowners who have not signed a lease should understand the importance of working with an experienced oil and gas attorney who can draft an effective pugh clause and assist in negotiating with the gas company to include this important provision in their gas lease.

0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 6, 2014 at 3:43pm

You get paid a pro rated share based on your lease's royalty rate and how many of you acres are in the production unit.  A simple mathematical example:

160 acre unit

All 50 of your acres are in it

Thus you make up 31.25% of the unit

Your LOR is 12.5%

Your royalty for that unit is 3.9% of the total

Does that clarify it?

Permalink Reply by carolynkhall on April 6, 2014 at 9:18pm

no !would you make that a little bit more clearer. Have yet to figure out what they are doing with the monthly statement! IS THERE ANOTHER PERSON IN LALA LAND WHO WOULD LIKE TO TRY??

Permalink Reply by george m vietze on April 6, 2014 at 11:57pm

Assuming the total production unit is 160 acres.  50 acres is 31.25% of 160 acres.

 50 acres divided by 160 acres= 31.25%.  If the lease rate is 12.5% and your % is 31.25%.

31.25% X 12.5%= 3.9%, therefore you should receive 3.9% of the calculated royalties when the checks are written.  (some leases have some production costs deducted after the gross royalties are calculated.)

Permalink Reply by Kathleen on April 7, 2014 at 1:18am
This topic has been discussed in depth on this site. One quick search will bring up easy to read threads that will dismiss any misinformation you have received. This information is in plain language and some threads almost presents it's self in a question answer way so its all answered.
Marcus answered but answered as a person who knows how this works.
That should not get a rude response.
I personally love this question and would have answered it in the way you are looking for but I'm stuck in lala land.
The search button is in the upper right hand corner.
0i7okn54zwbdoPermalink Reply by 0i7okn54zwbdo on April 7, 2014 at 2:25am

"no !would you make that a little bit more clearer. Have yet to figure out what they are doing with the monthly statement! IS THERE ANOTHER PERSON IN LALA LAND WHO WOULD LIKE TO TRY??"

Is this an attempt at sarcasm or was what I wrote not clear?  I'd be happy to go into more detail if that's what you're looking for.  If it was sarcasm then I don't quite know what to say.

Permalink Reply by Kevin in Belmont County on April 7, 2014 at 12:31am

You will get a division order from the O&G company that tells you how many of your acres are included in the wells production unit and what your percentage of ownership is. It has to be sent to you and signed and returned to the O&G gas company before they will pay you anything. It just depends on where the well lateral runs across your property and how your property lays. From what I've seen on final drilling plat maps, it usually includes most property within around 800' to 1000' of the lateral. After the final plat and the DO is signed hopefully you have a " Pugh Clause" in your lease that will release the rest of your acreage that is not included in the production unit that can be released after the term of your original lease. I can also say this at least in the area my acreage is in. History has shown if they drill a well and it is a very productive well the O&G company will be back to drill the rest. From the back deck of my home I can now see the lights from five well pads and there is another one going in this summer. Two years ago there wasn't one pad anywhere close to me.

Permalink Reply by evan on April 7, 2014 at 1:12am
If you get a declaration , meaning your land is pooled to make up a 640 or whatever acre unit. You will receive royalties regardless if the lateral doesn't go under or close to you. This is happening with me as we speak that way they can hold more acreage at one time
Permalink Reply by kit on April 7, 2014 at 4:00am
How do I find out if I have the Pugh clause..where will I find it...
Permalink Reply by Kathleen on April 7, 2014 at 4:39am
Hi Pat,

It will be on your lease most likely as an addendum or as an exhibit. Look up your deed in the courthouse and follow the info from there.
If this is an older lease, I'm sorry to say, you most likely do not have one, but hey you won't know until you look.
Did you sign a newer lease? If so, then (someone please correct me if I'm wrong) it may not be in the courthouse since only memorandum of leases were filed for privacy issues. If an attorney was used he should have retained a copy.
The driller has the lease also and that wouldn't be a bad place to look too.
Good luck.
Permalink Reply by kit on April 7, 2014 at 4:54am

Yeah. The attorney I used has a copy..I'll call them thanks Kathleen...your a big help

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