How is it determined who and how gets royalties off the pad site?

Please explain

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Permalink Reply by Todd on May 9, 2012 at 11:20pm

I wish someone would step up on this as well!

 

Permalink Reply by Farmhouse on May 10, 2012 at 7:19am

Picture a dart board, this is the Production Unit, with the bullseye in the center as the pad site. (Except in drilling it's typically a Northwest to Southeast rectangle).

The wells are drilled from the pad site and extend out from the 'bull's eye'.

If the well(s) produce, everyone who has land within the borders of the "dartboard" gets royalties proportionate to their amount of land within the unit. You could own 150 acres, all leased but only 100 acres in the unit.

Let's say Unit is 700 acres, you have 100 acres inside the unit, you get paid royalties on your 100 acres pursuant to the royalty % from your lease (among several other factors).

It does not matter if your land is in the south end of the unit and they drill a well going north. Once they declare the unit (with the county or state) and begin production, If you are named in the unit, you are in the unit. UNLESS they split the unit North and South, which I have heard of but never seen.

If your question is specific to the Pad Site, typically in your lease there would be language that describes compensation for surface damage, having the pad site on your land and perhaps a drilling fee that the landowner would be paid. But to my knowledge there is not a separate royalty clause for the landowner who gets the pad site unless it was negotiated in prior to signing. I have no experience to comment further on that.

Permalink Reply by Clinton44 on May 10, 2012 at 7:31am

Excellent explanation, Farmhouse!!

In reference to the split unit, we are in a split unit. The unit we are in the South unit is 536 acres with three wells, the North unit is 630 acres also with three wells. I think but have not been able to verify the fact that the North unit consists of all state owned property and that was the driving force for splitting the unit.  

Permalink Reply by Finnbear on May 10, 2012 at 9:44am

Does the parcel with the well pad enjoy royalties from both units?

Permalink Reply by Clinton44 on May 10, 2012 at 9:56am

As far as I know the pad is on state property in the North unit and only receives royalties from the three wells in the North unit

Permalink Reply by Finnbear on May 10, 2012 at 10:30am

I'd be interested to see a map of the pad & well bore locations and drilling units.

Permalink Reply by Clinton44 on May 10, 2012 at 10:36am

I only have DPU from the south unit that we are in, I do have plats of where all six bores go. I will gladly share them with you, however I am leaving for a short trip when I return I will friend you on the site and we can chat via email and I will send you what I have via private email.  

Permalink Reply by Jim Litwinowicz on May 10, 2012 at 8:49am

When a company prepares to drill they declare a drilling unit. The unit boundaries are set by the company without regard to land ownership, parcel boundaries, or even governmental boundaries such as township, county, or even state borders. The unit boundaries are set mainly on geology and what they feel will maximize their profits.

They are limited to only lands that are under lease...at least in Pa. In Ohio they have the option of forced pooling but they limit their use of such. And they do not have to use an entire parcel in a unit.....if one parcel is 150 acres, only 25 or 50 might be placed in a unit. A unit may be as small as 150 acres or as big as 1280 acres ....two square miles. A unit may also be much bigger...5000 acres or more..... if there are no restrictions in your lease or state law.

As for figuring royalties, they are calculated on the percentage of your land that is in a particular unit and the royalty clause in your lease. Say you own 100 acres in a unit that is 1000 acres or 10% of the unit. Lets assume the well or wells produce gas and/or constituents that sell for $100,000/day. Your hundred acres is 10% of the unit so $10,000 dollars is attributed to your land. Then multiply that times the royalty rate in your lease.  If your royalty is 17% than you will receive $1,700 in royalties for each day of production...unless your lease allows deductions for costs of production such as compression, transportation, dehydration, or more. "They" say that allowing deductions will reduce your royalties by about 2.5 to 3%.

Doesn't matter if the well bore is on your property or not. Even if the well is drilled away from your land and is  a half mile away, you will get royalties as long as you are in the same unit. And if the well bore is on your property you will share the royalties with all landowners in the uni, even ones that have not been drilled yet.

Permalink Reply by John Smith on May 10, 2012 at 9:33am

great info!  so how do i get a map of the drilling unit to see how much of my land is in the drilling unit?  the pad is next property over from mine

 

Permalink Reply by Clinton44 on May 10, 2012 at 9:39am

The DPU's when filed are in the county courthouse, and at least in PA their is no deadline for filing. I am still waiting for a DPU to be filed from a unit that has been in production and paying royalties since Nov of 2011, The other unit that we are in thats been producing since Feb. of 2012 has been filed. What the holdup on the first one is who knows???

Permalink Reply by John Smith on May 10, 2012 at 9:42am

if it is permitted it should be documented somewhere before they drill, as to where the bore is going...  correct?

 

Permalink Reply by Clinton44 on May 10, 2012 at 9:54am

I do have well plats showing where the horizontal well bores go. The DPU just was not filed..

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