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 Joseph-Ohio on May 19, 2015 at 8:04pm
As I read it all it's not only the same amount of his acreage falling within the two (2) different units - it's exactly the same 30.5265 acres falling within both different units.

Seems to me the only way his royalty % could change would be if there were two different leases covering exactly the same acres (and he writes that there are).

Asking Mlmc3475 to keep us advised as to whether or not the royalty being paid to him as the lessor is in keeping with his prevailing leasehold agreements (once he confirms it for himself).
Permalink Reply by Joseph-Ohio on May 20, 2015 at 10:24pm
Mlmc3475,

After this reply I'm going to stop and wait for your advice as to what happened.

The way I see it based on what you've told us is that new math differing from your original lease agreements is being applied that is or is going to result in you being paid much less royalty.

I don't know how or why that could be happening short of some new and different terms and conditions being applied and coming as a surprise to even you the lessor.

When you get to the bottom of it kindly inform us as to the how and why.

Thanks for sharing and good luck brother.

J-O
Permalink Reply by Joseph-Ohio on May 21, 2015 at 6:06am

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 Bob Shaw on May 21, 2015 at 10:56am

Brian Werner had the easiest to understand explanation, for me.

Mlmc3475 owns 30.5265 acres in 604.71 acre Unit 1,  which is 0.050581 (5.0581%) his share of Unit 1

His Royalty rate is 17% (0.17). 0.17 x 0.050581 = 0.0085818 (0.85818%) is his share of Production revenue

It is impossible to determine how much Unit 1 production comes from his 30.5265 acres, so the entire ownership of Unit 1 shares revenue proportionately.

Unit 2 of 498.61 acres is created and over laps Unit 1 by 92.8675 acres. This will diminish the production of Unit 1 and harm all of the ownership of Unit 1.

The solution is to allow all of the ownership of Unit 1 to have the same interest in the Unit 2 over lap as they do in Unit 1.

The over lap of 92.8675 acres in the 498.61 Unit 2 =  0.189676477 (18.9676477%)

Finally, Mlmc3475 royalty of 17% x Mlmc3475 interest in Unit 1 x Unit 1 interest in Unit 2

= 0.0015938 (0.15938%) Mlmc3475 share of Unit 2 Production revenue.

I am using Mlmc3475 numbers, but my Excel come out a little differently, but very, very close.

Permalink Reply by Joseph-Ohio on May 21, 2015 at 1:31pm
0.00159838 is only 15.9838% of 1% Bob.

A far cry from 17% of an acreage pro-rated share of production.

30.5265 acres / 604.71 total acres = .05048 x .17 = .00858 or still only 85.8% of 1% of the total unit production.

30.5265 acres / 498.61 total acres = .06122 x .17 = .01041 or 1.041% of the total unit production.

30.5265 acres / 92.8675 total acres = 32.871 x .17 = .05588 or 5.588 % of the total unit production.

The E & P decimal for the 92.8675 'overlap' unit (at .00159838) amounts to only 15.9838% of 1% of the total unit production - by far the worst deal for the lessor of the 30.5265 acres.

Also, the original leases are ignored - how does that happen other than by forced pooling / forced unitization applied for by the E & P and sanctioned / approved by the ODNR Oil and Gas Division Chief ?

No other way that it could happen that I've heard / read about
Permalink Reply by Bob Shaw on May 21, 2015 at 1:39pm

Joseph-Ohio, I don't have a position on this, I am only trying to see the logic of the facts on the table. Brian describes it, I understand his description. The end.

Permalink Reply by Joseph-Ohio on May 21, 2015 at 1:49pm
Bob,

I'm also just trying to understand it (because it's very important even to those like myself and my Mrs. whose land is yet unleased). Problem is I don't understand Brian's version or the math it presents.

There is truth in numbers (if we work with real numbers).

The numbers presented in my last reply are real.

The biggest unknown fact to me is how the 1st two (2) leases apparently became / are overruled / are superceded by this 'overlap' condition. To me, if the 'overlap' condition prevails; it must be accompanied by a 3rd lease that apparently no one other than myself cares to address / write about.

That's all I got on it friend.

Peace Out.

J-O
Permalink Reply by Bob Shaw on May 21, 2015 at 3:44pm

Joseph-Ohio I guess my initial perception was closer to yours because I am also a land owner under lease but not in production. I likely will face a similar situation having only 327 acres. 

1) He has 5% of Unit 1. Other people have 95%.

2) Unit 2 over laps Unit 1 by 92 acres. It will take some oil from Unit 1 and decrease Unit 1 production. The entire ownership of Unit 1 will have lower revenue as a result.

3) One way to make it up to Unit 1 is to give Unit 1 a partnership of Unit 2 equal to the overlap.

4) In addition to the 5 % of Unit 1, he will also have 5% of the 92 acres in Unit 2. The other Unit 1 partners will have 95% of 92 acres in Unit 2. 

5) For the purpose of petroleum production, he has given his land to Unit 1 and cannot give the same land to Unit 2 without sharing with his Unit 1 partners, in proportion.

Permalink Reply by Joseph-Ohio on May 21, 2015 at 4:06pm
I do not follow.

Why doesn't Mlmc3475 or anyone but me care / write about the lease that surely must accompany and apparently prevail over the 'overlap' acres drilling / production unit I wonder ?

Where are the royalty % and other tems / conditions specified in such circumstance ?

How is it that the new 'overlap' circumstance is permitted to prevail over the original leases ?

Anyone ?
Permalink Reply by Bob Shaw on May 23, 2015 at 3:38am

I think the premise is that he cannot use the same land to be in two different units. He is in Unit 1 as a 5% partner. Later Unit 2 over laps Unit 1, and all of the ownership of Unit 1 now has 92 acres in Unit 2, and he gets 5% of that as well.

 

Permalink Reply by Joseph-Ohio on May 23, 2015 at 8:15am
Bob,

And I think probably not.

Only my guess.

FWIW (or Not Worth).
Permalink Reply by Joseph-Ohio on May 23, 2015 at 2:55pm
As I understand this mess :

If so called Unit 1 and Unit 2 are 'shut-in' only the smallest royalty decimal would be earned by Mlmc3475 for owning 35.5265 acres (which is 32.871% of the total 'overlap' Unit's 92.8675 acres).

Mlmc3475 would not earn 17% of his acreage pro-rated share production but would only earn .00159838% of the production (only 15.9838% of 1%).

Unit 1 and Unit 2 leases ignored / rendered moot / superceded ?

Could that be the underlying plan ?

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