Split Pad Units -North/South Units Off One Gas Pad

A friend from work told me that he is in a split pad unit. He is in the north side unit and will not share in the royalties from the south side unit even though there is only one gas pad. Is this good or bad for landowners? What about the landowners who have the pad on their properties?

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Permalink Reply by Jim Litwinowicz on February 1, 2012 at 3:01am

Todd Careful of what you ask for.  They could drill one lateral into 1280 acres and you would get around $100/acre/month at the start.  But in a few years it could drop to less than $20/acre/month.  And they could hold that for 25 years or more. At the end you would be getting less than $10/acre/month.

While that small amount is better than zero, it sure isn't what someone with 100 acres is dreaming about.

Permalink Reply by LW on February 18, 2012 at 7:39am

 A split unit sounds like bad news for the landowner.  If they had 100 acres in a 640 unit that had 6 wells, and now the 100 acres are in one half , but still a 640 unit acre with only 3 wells, didn't  they instantly lose half of their potential royalties.  I assume that the unit size is staying 640 because it seems the one split unit I saw doubled in size with the 2 new units.    Or are they now in a 1280 unit(2 640 units)  with shared well pad of 6 wells, which still means less royalties.  Interesting, there is always something new.

Permalink Reply by matthew h mcsparren on February 18, 2012 at 10:17am

LW: Were you really good at 5th grade math story problems? Still a interesting point.

Permalink Reply by LW on February 18, 2012 at 10:34am

haha! It does go round and round.

But you do get my point. 

Lots of cash lost at the stroke of a pen, but then I assume it wasn't cash that was definite yet anyway.   Can they split a unit once they have started producing?

I find this very interesting.

Permalink Reply by matthew h mcsparren on February 18, 2012 at 11:46am

Yes I did get your point, and it is a good point. Was just jokeing around. Maybe some one with some legal backround can answer your question.

Permalink Reply by LW on February 19, 2012 at 1:48am

It is all mute anyway without all of the facts.  If they are after draining all of the gas in the 640 acre unit using 3 wells instead of 6, hopefully production #s come out the same or higher with less expense and less environmental impact!     

Permalink Reply by bo boboski on February 1, 2012 at 12:00am

This is very important. Not so much for the ones who have already leased,but for the ones who are or will be leasing. to check the wording to see if the oil co. can do such a thing. Can they divide a well pad up into 6 wellheads/6 lateral runs/6 acerage units that only those landowners get royalties that are within that unit? They could drill one lateral and hold by production the other 5 units for 20/30 years ,or until they need more gas/oil.   not have to pay royaslties to all those other poeple. If so; taking one lump sum may be a good deal. unless you're concerned about your grandchildren.

Permalink Reply by matthew h mcsparren on February 1, 2012 at 12:52am

I think a landowner would have to be in a unit getting paid a royalty to be HBP 

Permalink Reply by Finnbear on February 1, 2012 at 3:56am

The terms of the leases involved are what determines what can be HBP after the primary term. Your lease may allow unlimited unitization and pooling (CHK is trying to get some landowners in Stark county to agree to this). It may only allow your acreage to be held by a producing well in a 640 acre maximum drilling unit size.  It may be anywhere in between. There are all sorts of other things that can cause a leasehold to be HBP. It all depends on what you negotiate into your lease and how your lease defines what is HBP. Hopefully you have also included a solid Pugh clause (both horizontal and vertical) so only your producing acres and formations are HBP if you ever are part of a drilling unit with a producing well.

Permalink Reply by bo boboski on February 1, 2012 at 11:45pm

If I was an Oil co. If each horizontasl well is permitted individually, Then I would declare each lateral bore & it's drainage area as the unit size & only those affected landowners would get royalties, even if that unit is one of 6 total laterals off that  well pad. We could lease 1280 acres, drill one well,then hold by production the rest of the 1280 ac. till we want to drill another well or 2,  5or10 years from now when the cracker plants & pipelines are built. I doubt that leases signed so far have addressed this possibility, and may have been the plan from day one? Really; why would a drller drill one well ,with one lateral ,start production,leave,then pay all the royalties to the landowners that own what will be coming from the other 5 wells that may not even be drilled for years. check your lease.

Permalink Reply by Finnbear on February 2, 2012 at 1:54am

What you have described is almost exactly what will be done in many cases where landowners signed company leases.

Permalink Reply by Finnbear on February 19, 2012 at 6:14am

The drilling unit for production  (and calculation of royalty income) would have to be made up of land that extended 500ft beyond the perforated (producing) part of the horizontal well bore. It would not necessarily include the surface entry location if the perforated (producing) part of the lateral were over 500ft (horizontally) from where the pipe enters the ground. I can't say I've seen this but it should be possible. 

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