Replies to This Discussion

Permalink Reply by Utica Shale on May 8, 2012 at 8:45am

Hopefull,

 Actually you get a percentage of the gas & oil sales from a Production Unit. A Production Unit is an area,  usually shaped like a rectangle, that is drawn around the horizontal pipe(s). The Production Unit does not need to include the Vertical Pipe or Pad. If you have land inside that Production Unit boundary then you share royalties from those and only those laterals in the Production Unit.

Permalink Reply by Bryan on May 8, 2012 at 9:45am

So are you saying that a surface owner with the well pad on his land could concivably not be included in the production unit.
If the well pad was located near the property line and the vertical drilling and curve needed to reach the entry point of the producing shale could be off the well pad owners land.

If that is correct than one would need to be careful that you get a well pad and a well and no royalties because you never get into a production unit.

Permalink Reply by Utica Shale on May 8, 2012 at 11:39am

Bryan,

"... So are you saying that a surface owner with the well pad on his land could concivably not be included in the production unit ..."

 

  Given the 500' to 550' perimeter around the horizontal pipe and Ohio set back laws, I think landowner with the pad will most likely, if not always, have some land contained in each of the Production Units. The Horizontal pipe usually enters the Utica, PP or TBR layer within 550' from the pad.

 

 

"... Does that mean if a well was placed on property that the % would be times the number of wells drilled per pad ...

 

 If  you owned the entire 1,280 Acre Production Unit then ...

 Your Monthly Royalty Payment = Total Monthly Well Sales x your Royalty Percentage.

 

 My point is: The Royalty Amount is calculated from the Sales of the Wells in the Production Unit (not the number of wells per pad) AND also based upon your portion (%) of acres in the Production Unit.

 

  If there are two 640 Acres Production Units, then the North-West and South-East Production Units should "meet" at the center of the pad. In that case the landowner with the pad will have some land in the NW PU and some land in the SE PU and maybe some land in NO Production Unit!  The land owner with the pad can get DIFFERENT %'s from each Production Unit. The point is, for Royalty Calculations the Pad and the number of Vertical Pipes are not part of the equation. You get paid based on the amount of acreage you have inside each of the Production Units.

 

 Example of two 640 PU's but the pad is severely offest on your property:

 N.W. PU #1 Royaties Paid ...

 $100 = $10,000 Monthly Sales from PU #1 x 20 % Gross Royalties x 5 % of the land in PU #1

 

 S.E. PU #2 Royaties Paid ...

 $2,000 = $20,000 Monthly Sales from PU #2 x 20% Gross Royalties x 50% of the land in PU #2

 

 As you can see with these two Production Units, your Royalties are not calculated ...

 "... % would be times the number of wells drilled per pad ..." 

 

 

 Example of one 1,280 acre PU with same offset as above:

 Royalties Paid:

 $1,650 = $30,000 Monthly Sales from PU x 20 % Gross Royalties x 27.5% of the land in PU

 Again, your portion is adjusted by your percentage of acreage in the Production Unit.

 

 NOTE:  In all of the above calculations ...

 1) It did not matter if "the pad" was on your land our not

 2) The number of "wells drilled per pad" is not part of the calculation.

 

 These three item are used to compute your royalties ...

 1) Monthly sales for each well in that Production Unit

 2) Your (gross or net) Royalty % per your lease

 3) The percentage your acreage contributes to the size of that Production Unit.

 

 You have to think in terms of "Production Units" and not "Number of Wells on a Pad" unless you own all 1,280 acres of the PU which is very unlikely.

 

 

Permalink Reply by Bryan on May 8, 2012 at 2:15pm

Very well explained and I understand the production units and 640, 1280 units etc. I have seen well layouts like the White well that has 3 separate production units from the Whites pad. The entry point into the shale on two of the legs are not on the Whites land. I'm interested in what production units the Whites are included in. All three or just the one, we wont officially know until the division order is issued, but can the same acreage be used in more than one production unit: ie the well pad land. The land surrounding the well pad doesn't get fracked and doesn't have any drainage.

Thanks

Permalink Reply by Utica Shale on May 8, 2012 at 4:14pm

Bryan,

 Did you notice that you make $500 more per month with the 2 Production Units vs 1 Production Unit in the above extreme example? I wa swondering if anyone picked up on that tidbit.

 

 "... the White well that has 3 separate production units ..."

 Please provide a link to the White's "Production Units", thank you.

 Are you viewing teh PU via the link on the ODNR Completion Web Page or other?

 

 "... The land surrounding the well pad doesn't get fracked and doesn't have any drainage ..."

 It is claimed that fracking can crack out to 1,000'. And it is claimed that a 500' perimeter all around the horizontal pipe is drained.  Therefore, 500' can then drain all the way back to and under the Pad?  Also, sometimes the vertical pipe is drilled down and "backwards" away from the Pad. This allows the horizontal pipe then to pass forward and "under" the pad for drainage! I do not see that very often though.

Permalink Reply by Kathleen on May 8, 2012 at 9:50am

I was also so confused on this issue. As far as I know if you are in the unit you will receive from all the holes (wells) drilled from that pad.
Here's an exception. If your lease calls for 640 acres but the driller wants a bigger bang from that one pad they can make a unit going south east with three wells and three wells going nw. Let's say you are in that SE unit you receive the royalties from those 3 wells. Now the driller puts 3 more wells (maybe 4) going NW and declares that to be a seperate unit you are not in that unit unless for some reason you have land over there.
Once the unit is declared and they show you are in it even if they drill only one of those wells and they are not under your property yet and that one well starts producing you still receive royalties since its a unit not just one well. They could come back later to drill those other wells in the planned unit and this is also a way to hold by production since not just the landowners in that one well is held all the land in the unit is. This is where lease wording is so important.
Someone if I got that wrong please feel free to correct me since I'm still pretty new at this too :0).