Royalty payments

 We are in two units, Both have just started (one in Jan., other in Feb) together (we have been told) we will have 11 wells. We are waiting on Division Orders. My question is do you get paid per well or per pad? 

We only have 12 acres and I was just wondering if this is going to be nice money or REALLY nice money?

People are sending us letters asking if we want to sell. It makes my husband and I wonder how much this will end up being.

Is it important to have a lawyer look over the Division Orders?

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Permalink Reply by Frank Stupak on March 29, 2013 at 2:39am

You stated that on an average month you receive $300.00 - $500.00 per well. What does that average per acre, per month? Or is that per acre per month. Just wondering, usually everybody is hush hush about royalty payments.

Permalink Reply by Clinton44 on March 29, 2013 at 2:58am

Hi Frank,

In the unit that has 537 acres that we have the 14 of our  acres in that works out to about $35 per acre per month.

In the 688 acre unit that we have roughly 45 acres in it works out to around $200 - $250 per acre per month.

This is all based on a good months production figures with decent gas prices all royalties fluctuate with production numbers and the price of gas.

 

Permalink Reply by Frank Stupak on March 29, 2013 at 4:55am

Thanks you for the reply...  :)

Permalink Reply by Clinton44 on April 1, 2013 at 3:50am

Frank,

This is a split unit three wells in each split. The 35 per acre per month is because we only have 14 acres in the one split and there are 537 total acres in each half of the unit.

I would say the company is well on its way to making a profit since this unit as a whole produced just under 20 million dollars worth of gas in its first year in production. This unit has also paid out over 2 million in royalties most to the sate of PA because most of unit acreage is state owned.

Permalink Reply by Farmer John on March 27, 2013 at 3:48am

Hi Deci,

I personally would NOT sign any Division Order, or any other document for that matter, without first seeking Qualified, competent Legal Counsel review, UNLESS I was ABSOLUTELY CERTAIN that I fully understood the meaning & implication of EVERY word in that document.  Sometimes seemingly innocuous statements are slipped into D.O's.  For example, a shift of Liability onto the Lessor is sometimes seen in the fine print.  I would not to want to give up something, simply because I overlooked the signifigance of some wording. 

 

IMHO 

Permalink Reply by Clinton44 on March 27, 2013 at 5:25am

Farmer John,

Agreed I did state that it was up to Deci if she felt her division orders should be reviewed by her lawyer.

All the division orders we signed had no fine print, were fairly simple documents,and contained the following statement:

"This division order does not ammend any lease or operating agreement between the undersigned and the lessee or operator or any other contracts for the purchase of oil or gas"

 

Permalink Reply by Clinton44 on March 27, 2013 at 6:05am

Matthew I agree with you on the division orders, most of ours arrived after the royalties started and all the gas co representatives that I have talked to stated they never withhold royalties due to missing division orders, of course they should be signed at some point.

We recently had one well go into production on an existing pad where the five others have been producing since the end of 2011 and the one venture partner when questioned said they were not issuing a division order for one well because nothing has changed within the unit and all decimal interests were the same.

Very interesting that CHK offered to buy you out....

Permalink Reply by Billy Park Whyde on March 28, 2013 at 1:11am

Let me ask this since there are deductions from  YOUR ROYALTY can you use these deductions for tax deductions in some form?  

Permalink Reply by Clinton44 on March 28, 2013 at 1:25am

When we received our 1099's for royalty income for the year from the gas companies the gross amount paid was listed you must list the deductions on a seperate schedule (don't remember the schedule number off hand) as expenses. 

Permalink Reply by James Young on March 28, 2013 at 2:30am

Also don't forget your "15% depletion deduction"

 

Permalink Reply by Clinton44 on March 28, 2013 at 5:37am

Good point James!

I forgot about that our accountant did include a depletion allowance when preparing our tax returns.

Permalink Reply by Ed Erickson on March 27, 2013 at 11:59am

Deci,

     Are all 12 of your acres in both units? I had a landman tell me the same property could not be in the same unit. I wasn't buying it, but i couldn;t confirm it either way. Any help you can give would be appreciated

     As far as your royalties it's hard to say. Depends on output of wells and size of the units you are in. I would go into one of the royalty calculators and key in some estimates and see what you get. The royalty calculators will ask for size of unit and how many acres you have in the unit along with well output. You will get paid on your percentage of acres you have in unit as the numerator and the total unit acres as the denominator multiplied by your percent of royalties. (i.e. 12 acres/640 acres X 12.5 %=.23% of total royalties)

                             Ed

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