So Comstock has the Seaberg ES lease but divided this lease up into 3 units (Seaberg, Stone, Evans) The map shows the surface location of well in the Seaberg unit, goes through Evans unit and ends in the Stone unit.
How does royalty payments work like this and why did they divide the lease into 3 units vs just leave it as one despite drilling horizontally with one well through all 3?
They have the pad built and will spud first of year but our lease expires in a few days and needs to be re-leased. The well shows on the plat map to end on our place. How much negotiating power do we have in this instance? Also, the lease name and the 3 units under the lease name is confusing.
This is a pretty common horizontal well setup and it’s confusing until you simplify it.
Royalty payments are not based on the well name or where the pad sits. They’re based on where the producing lateral actually runs underground.
In simple terms, your share is calculated like this:
First, they look at how much of the producing lateral is inside your unit and divide that by the total length of the lateral. That gives your unit’s share of the well.
Next, they figure your unit participation by dividing your gross tract acreage by the total acreage in the unit.
Then they take that number and multiply it by your mineral ownership and your lease royalty. That gets you to your decimal interest. Multiply that by total production and that’s how your royalty is paid.
So even though the well starts in one unit and ends in another, everyone gets paid based on how much of the producing lateral is actually under their unit and how much acreage they own in that unit.
As for why they split the lease into three units, it’s mainly to hold as much acreage as possible and to maximize lateral length and development options. One well can hold multiple units, and more units often make it easier to place longer or better laterals. It’s more about development efficiency than anything else.
On negotiating power, you do have some leverage if your lease is expiring and the well is planned to land on your property, especially with a pad already built. That’s usually when royalty rate and lease terms matter more than bonus. That said, it’s not unlimited leverage once they already have a drilling plan in place.
This is a very simplified answer to a complicated topic, but it should help you make sense of what’s going on.
I won’t go into a discussion about the three units but wanted to address your comment that your lease expires in a few days and needs to be “re-leased”. Have you checked your existing lease’s language regarding the requirements to hold the lease?
Some leases require the actual start of drilling (when the drilling bit pierces the surface). Look for terms such as “commencing operations” or, “drilling operations are prosecuted” (started). Others are broader and it doesn’t take much to hold the lease past the initial term. The mere staking of a well site has been held to be enough to hold a lease (at least, in Texas). So, depending on your lease terms the operator’s building of the pad site has probably done enough to hold the lease.