Property in 2 units

So I have 30.5265 acres in a unit of 604.71 acres that is already producing. My decimal interest at 17% is 0.0085818 for the west unit. I just received division orders for the south west unit that is 498.61. The 2 units over lap 92.8675 acres. Range Resources says my decimal interest is 0.00159838. There formula is 92.8675/498.61*.0085818. They are saying that since I'm already in a unit that I have to share with the whole unit. Is this how this works? I would think I would get paid separate from each unit for my acres that I have in each unit.

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Permalink Reply by Janice L. Hancharick on May 21, 2015 at 5:49am

Having AC involved in 2 neighboring units can obviously bring on questions that would make Solomon ponder awhile.  You've heard from some knowledgeable folks.  I'm throwing in another option you have and that's to seek out a NARO (National Association of Royalty Owners) group for your state.  This organization works towards advancing the understanding and rights of royalty owners.  Quite probably there is a chapter near you, or @ least members w/a CMM rating who can speak with authority on your situation.  Don't be bowled over by Range numbers.

Permalink Reply by Joseph-Ohio on May 21, 2015 at 6:11am

Revision To An Earlier Reply Follows:

This instance is starting to look / read to me like a new 'overlap' unit is / has been created based on (much less than) a 17% royalty and 92.8675 acres.

Wondering if Mlmc3475 / his 30.5265 acres are being 'force pooled' / 'force unitized' into it ?

Also wondering (if that is what has happened) if it's changed any other terms / conditions from the original leases Mlmc3475 signed into prior ?

Kindly keep us in the info. loop Mlmc3475.

Thanks for the 'heads up'.

What's everbody else think ?

Any merit in these ideas

Permalink Reply by Joseph-Ohio on May 19, 2015 at 8:51am
Jim W.,

I'm reading the units 'overlap' one another by 92.8675 acres and not reading the poster's acreage to be a total of 92.8675 acres.
Permalink Reply by Brian Werner on May 19, 2015 at 2:12am
My property is in NW Carroll County where there are already many vertical well units in place. Your situation is identical and I can explain their calculation, right or wrong.
Their rule is that an existing unit takes precedence over actual properties. So property in an existing unit overlap is shared according to the existing unit interest not the actual acreage. This means that everyone in the first unit will share in the overlap according to their first unit interest. If your property is in the overlap you will get paid less. The amount you get less is basically divided up among the rest of the first unit. Everyone in the first will share an interest in the overlap, even those that are not in the overlap. This seems to be standard procedure where the horizontals are being drilled under existing vertical units. This is the first I've heard of them doing this for two horizontal units.
Permalink Reply by Brian Werner on May 19, 2015 at 2:44am
No this only goes one way. The new unit does not share in the old unit. Any property in the existing unit shares in a new unit by their interest in the existing unit. Once a unit is declared all proceeds within that unit will be shared among the unit by the portions defined. This makes sense if you think about it from a legal sense I suppose. The unit becomes an entity and everything within the unit is shared according to the agreement that created the unit.
Permalink Reply by Joseph-Ohio on May 19, 2015 at 12:15pm
Actually we don't know what royalty percent is being paid to the lessor in this circumstance (12.5% or 17%) and it was incorrect for me to allude in my reply that I thought that might be what was happening.

Apologies.

But the poster writes that he has the same 30.5265 acres in either unit (the 498.61 unit or the 604.71 unit).

I can't understand how the 'overlap' of the units could affect the royalty if the acreage in each unit is the same and the royalty percentage paid to the lessor is also the same.

I always believed that a lessor's royalty was paid on the lessor's percentage of the unit not the lessor's percentage of any 'overlap' of units. If that was going to hold true wouldn't that have to be spelled out in the lease ?
Permalink Reply by Joseph-Ohio on May 20, 2015 at 2:43pm
Since I wrote the above (I later noticed that) Mlmc3475 had cleared up which royalty applies to which original unit and the E & P calculation on the apparent 92.8675 acre 'overlap' unit.

Mlmc3475 wrote as follows :

'I have 30.5265 acres in the existing west unit and 30.5265 in the 92.8675 overlap of the 498.61 southwest unit.

The west unit calculation is
30.5265/604.71*17%=.0085818

I think the southwest should be
30.5265/498.61*17%=.01040794

Range calculation for southwest
92.8675/498.61*.0085818=.00159838

Our lease is 12.5% for above the Marcellus shell and 17% for Marcellus and below.'

That says to me that the E & P used the same decimal for the 'overlap' unit that was calculated for the west unit (which was calculated using the 17% royalty factor) and applying it to the (new / sudden) 92.8675 acre unit that I've been terming the 'overlap' unit.

Noting also what I'm terming the 'overlap' unit (only for clarity) is also called the 'southwest unit in the overlap' by Mlmc3475 within this post.
Permalink Reply by Joseph-Ohio on May 21, 2015 at 9:00am
Wouldn't any lessor with an existing well / leasehold agreement have to be contacted and requested to sign into any new leasehold agreement (covering any new unit(s)) ?

It still remains tough for me to understand how it could happen that any lessor would receive a 17% royalty per one leasehold and 12.5% royalty on another (or even any other royalty on any other unit - new or old) only because units 'overlap'- unless the lease spelled it out that way - how about you ?
Permalink Reply by Brian Werner on May 19, 2015 at 5:13am
My experience is that you are not contacted until you receive either a division order or your fist check - some companies don't hold up checks or even have you sign division orders and others do. The terms of the existing lease cover everything already. That is not to say that the calculations don't get very complex. It is a bit simpler when the royalty isn't dependent on depth. If they were to drill a new vertical well that overlapped the existing horizontal well or wells there would be quite an algebra problem to solve but they would work it out. The problem is that you need to work it out too, just to make sure the company did it correctly. In my case my calculation didn't agree with the company division order and when I questioned it they realized they had made a mistake and they had to resend out a new division order.

Don't confuse the royalty percentage with the well interest. The royalty percentage is used to calculate your interest in the unit. The poster is getting that same percent of the unit for the overlap as for the existing unit. But the fist unit only has a roughly 93/499 acreage percentage of the new unit, so the effective royalty is smaller. In the poster's case their actual acreage doesn't enter into the picture since their property is already entirely unitized in the first unit. If they had no acreage in the overlap they would also get the same interest in the second unit. In this case they would be on the receiving end and instead of the donor end of things.
Permalink Reply by Joseph-Ohio on May 19, 2015 at 9:37am
Unless unleased.
Permalink Reply by Bob Shaw on May 19, 2015 at 3:02pm

Brian, great explanation. It makes sense to me now. a) Mlmc3475 has 30.5265 acres in the First Unit, and b) the First Unit has 92.8675 acres in the Second Unit.

Mlmc3475 has the same interest in the First Unit as he does in the 92.8675 acres overlap of the Second Unit.

At first I did not understand where the difference in the two Units taken individually was allocated, but now I realize the difference in the Second unit interest is distributed to the entire ownership of the First Unit.

Permalink Reply by Joseph-Ohio on May 19, 2015 at 3:43pm
No guys - Mlmc3475 wrote that his total acreage is 30.5265 acres and it's all included in each of two (2) different units.

I'm thinking there are two different strata leased myself; each covering his 30.5265 acres.

The 92.8675 acres is a measure of the 'overlap' acres (the area that the units 'overlap' one another) as I read his post / replies.

Thats quite different than what Brian is describing as I read here.

Go back and read the whole post.again and each reply - I'm sure you'll see it all differently after you do.

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