Split or not: Are you being paid all royalty due?

I need help from other Lessors.  I'm just in process of running into this dilemma and I didn't see it coming:

I only own a single piece of land, a single chunk, and it's all together.  But my land is split among more than two drilling units.

When I was named into the first unit everything was fine, probably why I did not foresee this.  Upon receiving that first unit declaration I was told, right within the declaration, the size in acres of the entire unit.  My royalty owner report for the unit gives me my percentage participation.  Thus, it's very straightforward to calculate the number of acres I have in that first unit.

I assumed, wrongly as things turn out, that this approach would be taken with succeeding units into which my land was placed.  In the end, I again (wrongly) assumed, I would be able to calculate the number of acres of my land in each of the several units it occupied.  This, I knew up front, would be pivotal to knowing I was collecting royalty payments for all my acres.

Here is what just happened:

A second portion of my land was placed into a unit.  I received the unit declaration.  There is no mention in this declaration of the total number of acres in the unit.

At the time I signed my lease I failed to foresee something like this.  I have no provision which guarantees me access to unit size data.  This was my bad.

Anyway, it would be helpful to learn the experiences of others in this situation.  In particular, are your unit declarations routinely providing you the (overall) size of the unit?  Because in the end, when all our land has been unitized, we need a way to be sure they are paying a royalty on all the acres we own and have leased.

Even landowners all of whose land is in only one unit need to run this check.  It's necessary to divide your number of acres by the total size of your unit, in order to calculate your participation percentage, then to check and see if that number agrees with your royalty owner's report.  The common bottom line is that you can't do this, you cannot perform this check, without knowing the overall size of the unit.  And you cannot know that unless the gasco tells you.

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Permalink Reply by Kathleen on May 5, 2012 at 3:17pm
I don't understand something. If each unit is its own entity why wouldnt the second unit provide all the same information as the first unit". They have to declare the unit to the state and I'm pretty sure they cant say " a lot of these leased parcels are partially in other units so from here we are just guessing a little". Could you imagine?
Maybe they messed up the first report they sent you.
Permalink Reply by Frank Walker on May 5, 2012 at 4:29pm

Maybe.  But actually I'm hoping they messed up the second unit declaration.  That's the one missing the critical data of overall unit size.  The first unit declaration they sent me was fine, and it included all critical data.

Part of my concern, and I'll confess to some paranoia here in absence of hearing about others' experiences, is gasco has realized that by withholding unit size data it's impossible for royalty owners to know where they stand.  I should have included this in my lease, should have included a provision requiring Lessor to disclose unit sizes.   But there was no way back at that time that I possibly would have thought of this.  Heck, I'm still climbing the learning curve even today.  If I ever thought of this at all, I probably just assumed they would disclose overall unit sizes.  Such stupid assumptions, obviously, can be fatal.      

Permalink Reply by Clinton44 on May 5, 2012 at 5:27pm

Hi Frank,

We are in PA, in two seperate units. On all division orders we received the total size of the units are indicated, however the amount of acreage we have in the units is not indicated on the division orders.

Both the acreage we have in each unit as well as the unit size is indicated on the declaration of pooled unit, however I am able to find only one of the declarations filed in the courthouse. The other has not been filed yet, but the company is sending me a copy of the one that is not filed yet. So fortunately I am able to verify the royalty owner decimal interest. 

I found out all the information that you are inquiring about by calling the land agent division of the driller. I called as soon as we new we were in the first unit.

Also there are honest people working at the gas companies, just this week we were contacted about a royalty interest calculation that was incorrect and picked up by one of the division order analysts at the company that holds a 50% working interest in the units that we are in.

Also found out that one of the units we are in was split into a North and a South unit we will only share in the royalties of three wells on that unit but it will work to our benefit, better to share in three wells in a 536 acre unit that six wells in say a 1300 acre unit the royalties are not as diluted.  

Permalink Reply by Frank Walker on May 6, 2012 at 1:52am

Eric:

Sounds to me as if you're in good shape.  As long as you have sufficient data to be able, in the end, to know whether all your land has been unitized, you are in the tall alfalfa.

As I wrote in the OP, whether split or not, all landowners need to be able, after unitization is complete, to run this check.  Heck, we'd be crazy not to!

Permalink Reply by Clinton44 on May 6, 2012 at 2:09am

Frank

You are correct, I think what happened here in PA., and could quite possibly happen in the utica shale boom in Ohio is the simple fact that the units are formed faster than the staff at the gas companies,surveyors, and courthouses can file the paperwork.

In one unit that we are in there are 83 other individual royalty owners as well as state owned land. The paperwork involved in just the declaration of pooled units must be overwhelming to a small county courthouse with limited staff. 

Permalink Reply by Frank Walker on May 6, 2012 at 1:43am

Utica:

Yes, I have contacted them and the process is ongoing.  Yes, units are producing.

My principal surprise, and my reason for posting here, was at receiving a unit declaration that did not tell me how many acres are in the new unit overall.  That was a shocker for me.

Clearly they may make further disclosure in future.  I hope they do this voluntarily as I know of no way I can force them to do so.

I am really annoyed with myself, and perhaps also somewhat ashamed,  in that I did not realize earlier the criticality of knowing overall unit size.

Permalink Reply by Kathleen on May 6, 2012 at 3:06am
I really think like Eric said this is just a back log. You'll get that info you want soon. They have to know and declare this info at some point.
I'm in a proposed unit right now. No one can say how much of my land is in it yet. They can see the drawing but not the breakdown. They did not send me paper work saying Im in a unit, I found out because I was sent water test paper work so I called. Since the unit is young in its developement I was okay being told they could only see it appears a third of your land is in.
To know it starts out with just a drawing than moves to who's who in the unit than the full breakdown I think they just jumped the gun by sending you the unit paperwork.
Permalink Reply by Frank Walker on May 6, 2012 at 4:01am

Kathleen

I agree with you, and with Eric's thinking as well, that paperwork backlog is operational in this situation.

But I do stray from your thesis in one respect:

You mentioned your paperwork has not come through.  I waited eight months for mine.  The unit was producing gas eight months before I ever saw the unit declaration.  So clearly there is a backlog.  But once the paperwork, the unit declaration, finally at long last comes through, it should indicate the total number of acres in the unit.

For the paperwork not to come through is one thing.  For it finally to come through, yet still lack critical information, is another matter entirely.  

Permalink Reply by Kathleen on May 6, 2012 at 7:05am
Oh I agree and think you should tell someone at the odnr. To me the fault lays fully on the oil co. shoulders to make sure the paperwork sent to you has all the correct and fully updated info included. If one department is ahead of the other one than that co. should either hire more people or have to hold off on that unit. To not know what acreage is in a unit but they are drilling almost feels like theft.
The back log from the state should have nothing to do with what you receive or it shouldn't have gone out yet.
Are they drilling yet? Either way I would demand this corrected ASAP.
I bet it's still fun though to see you are in units. I can't wait to get our declaration of a production unit. Fun fun! I just hope we are more in after the drawing is finalized. I hear it can change right till they drill or something like that.
Permalink Reply by Frank Walker on May 6, 2012 at 1:10pm

Yes, it's a very troubling situation.  To process such an enormous backlog of paperwork the gascos need people.  These people cost them money and bring in no new profit.  And with gas languishing down around $2.00+, there is not the money to pay the needed people.  It's a mess!  

Permalink Reply by Finnbear on May 7, 2012 at 3:40am

Frank,

Are you in Ohio? If so, what county?

Permalink Reply by John Harrison on May 7, 2012 at 3:44am

Don't be fooled.  The gas companies can get their units filed over night if it is in their interest.  Since PA has no Conservation law for the Marcellus there are no rules whatsoever for units other than what the gas companies make for us.  Why is it that as a resident you can't change your underwear in my county (Bradford) without the county planning commission getting involved and yet they can't be bothered with something that affects everyone's royalty check.

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