Question on Allocation of Royalties

Can anyone help me understand this? Will I get anything if I my 40 acres is part of a 300 hundred acre unit but the horizontal will not go under any of my acres? How should it be stated in a lease, if it is all possible, that your entire acreage be used for getting royalties. Or if there is only a small fraction of the horizontal going under is there a way to include the whole acreage? What would that wording be in an addendum? I do not understand the royalty part of a lease. Is it based solely on what fractional part of gas is extracted from your acreage? Thanks, I need to know what I am doing, I may be signing a lease soon..

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Permalink Reply by HARRY STEPHENSON on December 13, 2009 at 11:04am
I am not an expert on this, but the way I understand this is if you are included in a unit you will get royalities on your entire 40 acres whether the horizontal is under your land or not. You do not have to add an addendum....that's just the way it works.
Permalink Reply by Whitt on December 14, 2009 at 9:02am
That is not how the royalty portion works. You will only receive royalties for the proportinant share of the property that is being developed. There is not going to be a company that will pay you royalties on acreage that is not being produced. You can add a pugh clause that will only allow the company to hold acreage that is being produced but you will not get paid on all your acreage because it is in a unit. Some companies will not give this in their lease but it is what you should look to have added.
Permalink Reply by Sinclair on December 14, 2009 at 1:20pm
Thanks for your reply, Now I am even more confused. Will it or should it state on the lease what part of your acreage will be used for figuring royalties. Are you saying that If my property is part of a unit but the first horizontal is not under my acreage, then i get nothing? Can the lease then be held by production in the unit that is not creating royalty income for our acreage or will the lease expire after the primary term is up?
Permalink Reply by HARRY STEPHENSON on December 14, 2009 at 2:26pm
Me too!!! Jenny, if you go to PSU cooperative ext service web site and go to their royalty calculator you will see it explained exactly as I did to you. Click on tools. Then on PSU royalty calculator.
It says if there is 400 acres in a production unit and you own 100 acres of it you will be paid 25% of the royalties of that unit times your royalty lease rate. It doesn't matter if the horizontal is under your acreage or not. Not sure what other gentleman is geting at????
Permalink Reply by Dolores Chobert on December 15, 2009 at 3:25am
I agree with you. We were told we'll get royalties for all 25 acres , because we're in the unit. Doesn't matter if its under our acreage or not.
Permalink Reply by HARRY STEPHENSON on December 15, 2009 at 5:50am
OK, I think the confusion here is in assuming that the 40 acres of leased land in the original question is all in production unit or not. For my answer I assumed it was. Apparently Mr Whitt assumed it was not all included. If not all of the leased land is in the production unit then yes you only get royalities on the part that is included. That is also where the pugh clause comes into play.

But to answer the original question again....the horizontal DOES NOT have to be under your leased land that is in the production unit to get royalities. WHEW!!!!
Permalink Reply by S.M.Williamson on December 15, 2009 at 6:04am
If you are part of a group your entire acreage is considered covered, unless otherwise excluded in the wording of the contract. Also, make sure you don't sign a lease that puts you in too long of a holding period with excessive or endless contract option to drill at a later date in the future. Avoid a contract that requires the energy company to recover their investment before you receive royalties. My advice would be to get a lawyer from Texas with experience in the leasing of land to big oil and gas companies. Do not trust the judgement and inexperience of the lawyers jumping on the boat, you could potentially lose an enormous amount of money and give up rights not necessary.
Permalink Reply by beetle on December 20, 2009 at 3:00am
Just how do you tell if your in a unit or not? There are wells going in all around me and im signed......how can you find out?
Permalink Reply by Charles Moss on January 7, 2010 at 1:42pm
Can anyone help us with this question? How do you get to see a production unit map? How can I find out how many acres are in the unit to which I belong?
Permalink Reply by BuckinghamGasMan on January 21, 2010 at 9:44am
I just listened to a Webinar from PSU on this and similar topics. They explained that the company developing the production unit will contact you about your inclusion. If you have not heard, then you are not in one. However (if you don't really trust the gas companies), I believe that the units are filed in your local County Recorder of Deeds office. Visit the Penn State web site and get some good information, including the "Webinars" that have already been held and can be watched. Visit: http://naturalgas.extension.psu.edu
Permalink Reply by Oil and Gas nightmare on November 30, 2010 at 1:38pm
I would like toundertand this a little better...we are about to sign...and they have all the land around us....sooooooo if they are putting a well on my neighbors property, and lets say we both have 25 acres...but you did not sign at the same time, yet it is with the same company. Does that mean if and only if we signed when they did and became aprt of an officail unit, we get nothing? OR the maps you speak of, if they show although signed seperatly, if they are calling you guys a unit together you both get royalities? I know its based on this and that as far as how much but, I want to make sure that if they put up a well next to my land i am getting apart of that or I am moving on to the next guy that is putting it on my land :)
Permalink Reply by Charles Moss on January 8, 2010 at 1:46am
Thanks for your help, Ruby!

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