Unit size

We were notified that the unit size for our lease & wells was increased significantly from what we were originally told. What effect does being part of a larger unit have on royalties ?

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Permalink Reply by James Foster on August 21, 2014 at 7:56am

You will get less money from the one well under your property (it will be shared with all in the unit) but you will get money from the other wells on the pad.  You do not say if 640 or 1280 but roughly three wells on 640 and 6 on 1280.  If they drill one well and hold 1280 acres by production and do not come back for several years to drill the others then lower payment for longer time.  Good if you are young, bad if you are old.  Also tax bracket .... more money all at once may raise your income so you have to pay more tax ... less money each month taxed at lower rate depending on your circumstances.  If you have a dud under your property you may share in other wells that are better.  If you have a great well and others have dud well you will share with them. Pros and cons of large and small unit but no way to predict what is down there so you will only find out if larger unit or smaller unit would have been better after the fact.  You could have controlled the unit size in the lease.  We have 640 but companies want 1280.  They have to drill one well to hold 1280 but two to hold two 640 acre units ... one in each direction.

Permalink Reply by Rich on August 21, 2014 at 9:04am
James
They can an will put more than 3 wells on 640 acres. The patterson well in W. Pa is about 460 acres and they 4 wells already and permits for 4 more!
Permalink Reply by James Foster on August 21, 2014 at 5:06pm
You did not mention what state you are in. In Ohio current regulations require setbacks on each lateral of 500 feet which allows for 3 wells in 640 acre unit. Some companies have gotten permission to use 750 and even 500 between wells since technically set back is for unleased land. In a 640 acre unit only at edges do they need to be 500 feet from unleased land. Each well is a separate unit as far as odnr is concerned. Law is slightly behind reality. They are researching if it increases production or just cost to put them closer. It was believed that they could draw product from up to 500 feet each side of lateral but could they get more if wells were spaced closer.
Permalink Reply by Jack Spink on August 22, 2014 at 12:22am

Thank you for the response.  We are in PA & the unit was increased for 640 to around 1,100 acres.  

Permalink Reply by Kathi Albertson on August 22, 2014 at 4:53am
"Each well is a separate unit as far as odnr is concerned."

James, I'm confused. The sentence from your post above seems to contradict your first post on this thread. Since I am still struggling to understand how Chesapeake, as I understand it, can seemingly divide drilling units into separate production units, the latter of which receives the royalties, it would seem as though your most recent post with that sentence reflects the Chesapeake practice while your first post does not. Some say as you did, that all in a larger drilling unit share in the royalties of all wells in the unit, but then along comes the concept of the production unit that limits the royalties to those on the lateral which I assume to mean each well. I would like to see a definition of the terms "drilling unit" and "production unit" from odnr.

Any help to clarify this would be appreciated. Thanks in advance.
Permalink Reply by James Foster on August 22, 2014 at 8:49am
Each well is drilling unit set by odnr regs in ohio. Drilling units can be combined into a production unit. One drilling unit could be a production unit. But most production units have multiple wells. Payment is based on production unit. I did not mention which type of unit in either post but based on original question I knew he meant production unit.
Permalink Reply by st. croix on August 22, 2014 at 2:44am

we are part of a 640 unit and they put seven on it,Monroe county

Permalink Reply by Zack Jameson on August 22, 2014 at 3:08am

I guess I lucked out. My unit has 11 wells, which is great. Marshall County, WV

Permalink Reply by Puzzled on August 22, 2014 at 3:38am

Which well in Monroe county?  Stalder?

Permalink Reply by James Foster on August 22, 2014 at 8:50am
All utica or some marcellus? We have no Marcellus in our county or none worth producing to date. Seems to be the exception not the rule if you look at all wells in Ohio to date and i did mention in second post some companies putting less space between laterals in interior of unit.
Permalink Reply by st. croix on August 23, 2014 at 3:01am
The seven wells are on the dangel pad and I was told they will do the Utica also

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