How are royalties apportioned to different regions within a section?
Consider the hypothetical situation where one owns rights within one quarter (160 acres) of a section (640 acres), and a well is drilled within a DIFFERENT quarter (also 160 acres) of the same section. Please explain how the operator applies their knowledge of the well location and the route of any laterals to apportion the oil and gas withdrawn. How can one determine whether or not they are receiving their proper portion? Thanks in advance for informing me!
The quarters are part of a unit. Traditionally a unit is 640 acres or one Section. Sometimes they are 1280 acres or two Sections. Any interest you own within that unit gets divided by the unit acreage. So if you owned all of the North West Quarter you would divide by the entire 640 acres. You would then multiple by your royalty rate.
Net Acres/Unit Acres*Royalty Rate = Net Revenue Interest or owners decimal interest.
160/640*.1875=0.046875
Hope this helps. You can friend me and I can walk you through if you have any additional questions. Sometimes the 1280 acre units get complicated.
Good question. The normal way wells are drilled in Oklahoma requires the land to be "spaced". Spacing is the statutory determination of the drainage area for one well. For example, vertical oil wells frequently are spaced for 80 acres (half a quarter section). The OCC takes testimony concerning economics, geology and engineering (reserves, drainage or both) before issuing a spacing order for a particular geological formation. If your minerals are in this space unit, then you should get your proportionate share of the revenue. If your minerals are in another part of the same section, then you will not get any revenue. You might, however, get a chance to give evidence at a spacing hearing if you are adjacent to the proposed, new spacing unit. There is an OCC rule covering placement of a well on unspaced land but that case does not often occur. Many horizontal wells being drilled today involve not only the whole section but multiple sections. Some operators are pooling half sections depending upon their understanding of the geology. You should get yourself a copy of the "Basic Information for Oklahoma Royalty Owners" or the Oklahoma Royalty Owners Handbook (two names for the same thing) which is free from the OCC. Just do an Internet search and you will find it.
Thanks Matt! Where can I find the applicable "unit" acreage specifically for Section 1 of T15N R13W in Blaine County? Is it on the published drilling permit of Cimarex for their well (Watts 1H-0136X) in that location?
Thanks Stephen! I'll get the Handbook asap. How can I obtain the applicable "spacing" for a specific well (Cimarex's Watts 1H-0136X) in Section 1 T15N R13W ? Will it be stated on the published drilling permit?
Enter in the relevant order numbers and read the appropriate portion. I found the answer in Order # 655173 wherein it is noted that as an equal length of perforated intervals lies between both sections 1 and 36, the allocation of production is divided equally.
For multi-unit wells, the OCC will require a survey of the well, with the focus on the location of the perforated length, from the operator before confirming the division of interest between sections. The usual assumption is 50% to each section but the hole survey will result in a final order on the actual percentages. One of my interests involving three sections was only getting 20% because of the way the operator was drilling the well to avoid a fault (with the other 40% shares going to two other sections). The final survey resulted in my interest receiving only 18.8%.