Maybe some more experienced eyes can clarify how this is done. For Kessinger 1-11-2XH, this well starts in Sec. 14, goes all the way through Sec. 11, and ends in Sec. 02. (02N 03W) . By length, each section has the following percentages (02-46.8%, 11-47.4%, 14-5.8%) (approximately) . 1280 acres is allocated for the well, 640 in Sec. 14, and 640 in Sec. 02, but none in section 11. Seems odd that Sec. 11 is left out since the well traverses the entire section. If you had holdings in Sec. 11, how would you figure your allocation? Sec. 14 shouldn’t be left out totally either, since that is where the drilling started.
You can find the plat on the OCC wellrecords site. 14-02N-03W https://imaging.occ.ok.gov/OG/Well%20Records/1DD4352C.pdf (always good to put the section, township and range in your question to the forum)
The formula is: net mineral acres/actual spacing acres x royalty x percent perforations in the section.
If there are no perforations in section 14, then no royalties would be assigned to the section. Wells are frequently spud across the lease line in order to accommodate for the vertical and turn portion of the well and reserve the horizontal section for the intended sections where they intend to perforate.
Section 11 is 640 acres actual. Section 2 is 634.84 acres
Usually, there is a revised and final order which says what the perforations percent is, but I am not finding it.
Here is an estimate based upon the information in the completion report and the survey information.
The completion report says that the perforations are from 9424-18358 measured depth. The survey says that the section crossing is at 14105.
I get 14105-9424=4681 feet in section 11. (52.395344%)
I get 18358-14105=4253 feet in section 2. (47.604656%) You know your royalty and your net mineral acres, so fill in the blanks on the equation got each section. Casillas is the operator. You can contact them to see what the actual numbers are according to the Division Order.
The well was supposed to be 50/50 with the two sections, but operators usually send a document to the OCC with the final numbers. Continental sold to Casillas, so one of them has the actual final percentages. I did my calculations from the documents available online. Contact the Division Order analyst at Casillas to get what they are using.
Thanks @M_Barnes. I had looked for some hints in the completion report that would give the percent perforations,
but I couldn’t find them either. Now, thanks to your good explanation I have a much better idea how this is done.
The OCC Royalty Owners Handbook gave some hints that the allocation was based on length in each section, but they never mention perforations.
Thanks for taking a few minutes to explain things to a rookie.
The wellbore did not penetrate the Woodford in section 14 so it receives no portion of proceeds. I haven’t seen the final allocations, but it was set to be 50/50 between 2& 11.
Thanks Todd and M_Barnes.
Doggone you M Barnes, you give me a drink from a fire hose every time! This was a very useful post and I learned an awful lot. Now for the questions it brought up: I am having two horizontal wells drilled on my mineral rights, going from my rights on the North end of a section, going south thru two sections. From your statements I may never see a penny of production! How can we trust an oil person to just “say” that they did not have any holes in the pipe at a particular location? How can we believe how much oil they get from any given foot of the well? From what you indicated due to the curve from vertical to horizontal, I cannot expect ANY royalties from the oil well on MY mineral interests location! That sure seems unfair. If I owned a section and did not want to lease, there is therefore no way to keep them from drilling from border to border under my mineral interests and paying me absolutely nothing? As you can see, my history has let me have a lot of mistrust of the procedures.
Don- In short, if the wellbore penetrated the zone that is producing in a unit that your minerals are a part of, and that wellbore has perforations in it and those perforations are in any part of the unit where your minerals are located, you are entitled to revenue from the same. Just because the surface location falls in your section, doesn’t mean that there is production from the wellbore in that same section. Hope this helps.
You ask some good questions. The OCC has rules that protect the drainage along the lease lines. The operator may use your section to drill the vertical portion and turn portion of the horizontal, but they may not perforate closer than 330’ (in some cases) from either your lease line or the other lease line. That gives 660’ of “no drainage” area in order to protect your property. That particular well is not draining your property, but another future one could. The roles could be reversed and they drill across the lease line from you and then come into your section and perforate and then you do benefit from the same rules. It is not the “drilling” that counts-it is the “perforations” that count. If you don’t have any holes in the pipe on your side of the lease line, then you don’t get paid royalties and they are not “stealing” from you due to the 660’ buffer zone. When the operator perforates, the have detection systems that tell them where the perforations are.
On your other question about not wanting to lease… If you don’t want to lease, then the operator will try to lease as many folks in the section as they can. They will then go to the OCC and have a forced pooling hearing. They will offer a selection of royalty-bonus options and attempt to notify all non-leased owners. If you do not respond within 20 days of the order, they will assign the lowest royalty/highest bonus option to all non-leased owners and hold the funds in suspense for the owners to claim. If the well is successful, then every mineral owner will get the royalties (if there are perforations in their section). They will send out royalties to owners they can find and hold royalties for owners they cannot find. After a certain number of years, the royalties will be turned over to the state to hold.
This is how it works in OK. It is a bit different under Texas law.
Wow, more drinking from a fire hose! Next question: So they have drilled two wells on my lease (in New Mexico), but have no perforations on my lease but four miles of lateral perforations. Since I have not seen any production, does that mean I can run-em-off if they have to renew the lease when it expires? If not, that would seem to give them a lifetime lease for free, can that be? The lease in question is t25s, r36e, s8 Lea County NM I also have T25S, R36E, S18 Also, if someone drills within 660 ft of my lease, I would get royalties?
Maybe this will work better:
I do not work NM, but there are some knowledgeable folks on the forum who do. They have indicated where the first take point will be on the eastern well. It may be that they have not frac’d the wells yet. Many wells that were drilled in 2020 were not completed yet due to lack of crews and low prices. Be patient on these two. You can call the operator and see when they plan to perf and when you can expect to get your division order.
Go back and read your lease. It will have very specific words describing how long the lease can be held.
NM has different rules than OK. I do not know what the buffer zone is in NM. If you have wells on your minerals and the minerals are within the spacing unit of the wells and they have perforations in your mineral spacing, then you get royalties.
You would have to ask your other questions in the Lea County area.
NMOCD issues pooling orders for specific acreage and formation. You need to find the application and pooling order for Black Marlin wells to see which parts of sections were pooled, such as East half of Section 18 and Section 19 or maybe East half of East half. Then see exactly where your minerals are located in Section 18. If they are in West half, then you will not be in the unit. Look for a unit in West half of Section 18 or portion where you have minerals. The wells you have added are each 2 mile laterals which will include all minerals within the pooling order.
Thanks again to you both, most helpful. This is indeed difficult for us to understand. I have the division order, dated 21 Dec 2020, it includes both wells. Does that mean they are perforating in my lease?
If you received a division order, then they did perforate at least one of the wells. If both are listed, then they perforated both. It may be a few months before you get royalties. Hang in there. TennisDaze can comment on the normal timeframe for NM first royalty checks and if there are any interest penalties for being late.
Thanks again, it is all beginning to make sense now. I received a bit more education last month, got my royalty check for another oil well (a very old shallow vertical well) and for the gas well. The gas well actually took money from me to operate! I am glad I am buying natural gas for someone, but it scares me how much figures in the red might go. I guess it cost more to get it to market than the value when it got there. I never knew I could go broke owning minerals before. Just how low an this go?
Post production charges on gas wells can get very expensive. Hopefully, the increased take-away capacity in Texas will relieve some of the higher charges.
Does this mean fracking has been competed, or what does it mean?
If I understand the mumbo jumbo correctly, they HAVE been fracked:https://ocdimage.emnrd.state.nm.us/Imaging/FileStore/santafe/wf/20210206/30025469760000_02_06_2021_02_48_49.pdf