Question for the members:
Earlier this year received a division order this year on an overriding interest of a Well #1 (Panhandle of Texas) that I had from the early 90s that had been in light gas, oil and hydrocarbon production for approximately the last 5 years.
Then Feb 2010 it was suggested by the operating company that a pooling interest be agreed to for the reference Well #1 location. The well lease was suggested to be divided from 320 Acres to 160 Acres through the same operating company to drill on the other half a horizontal well on the same property effectively cutting the overriding royalty payments in half for the new Well #2 (Horizontal).
Now another division order from another operating company has arrived by mail for the second well only which is in production now producing oil, gas and related hydrocarbons and they are proposing through another division order a further reduction of interest ORRI for well two (horizontal well) to about a 1/8th of this well only for reported marketing of the gas.
Questions
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Is this a normal practice to take an original lease location and subdivide it? If so why would this be done? i.e. additional investors or an arbitrary business decision?
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Once Well 2 (horizontal) is in production is it a common business practice to have another oil gas related company to market it at a fraction of that interest?
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Payments: Understanding will checks follow from each of the following accounts:
- Well #1 at the original ORRI interest rate
- Well #2 Horizontal at the ORRI interest rate that was cut by half from Well #1
- Then another check cut for the marketing of the oil and gas for well 2 only at that prevailing division order interest rate which at approx a 1/8 value of well #2 (Horizontal)
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Finally what recourses do I have as a ORRI investor in this process and is there anyone else that has experienced the same or similar process?
Thanks for the replies in advance.
JS