Is the attached Production Sharing Agreement from Sabine O&G typical? It states that "good and valuable consideration" is acknowledged, but doesn't give a figure. Should I be given a signing bonus? Does this PSA raise any red flags? Interest is in 677 acre pooled unit known as the Sabine O&G corp. - Williams Gas Unit No. 1-A in three surveys in Harrison Co, TX. Thanks in advance for any feedback my friends here can provide.
1167-2015.05.27WmsGUPSA.pdf (933 KB)Dear Ms. Goebel,
This is a very typical production sharing agreement. The reference to "good and valuable consideration" is included to satisfy the law of contract - meaning that consideration must be expressed. In this case, the covenants and promises of the agreement are the moving consideration. No, you are not entitled to a bonus payment. That payment was made some time ago.
For those who do not want to read (or need some help understanding) the attached PSA, the interest owners grant, without any restriction, the right of Sabine to pool lands inside the Williams GU No. 1-A with other lands.
Further in the PSA is a allocation formula for the sharing of the production on wells that are drilled cross units. For example, if you had 1/2 mineral interest in the Williams GU No. 1-A and a new well was drilled, let's call it the Sabine-Williams 1-A PSA that has a lateral length that covers a portion of the Williams GU No. 1-A and other lands and the Sabine-Williams 1-A PSA is formed to encompass 4,000 acres, with a productive drainhole length of 2000 feet in the Williams GU No. 1-A and a total productive drainhole length of 8000 feet. In this case, our 1/2 mineral interest owner in the Williams GU No.1 A would be entitled to (1/2 (2000)/8000) x RI on the lease for the Williams GU No. 1-A. On a 1/5 interest lease, his share would be (1/2 (2000)/8000) x 1/5= 0.025, or 2.5%.
If other wells are drilled that transverse lands in the original Williams GU No 1-A, the allocation formula changes for each horizontal well based on the percentage of productive drainhole length. So, let's drill another well in the PSA super unit. It has a productive lateral length of 7900 feet, of which 1400 feet are in the old Williams GU 1-A.
The formula for that drainhole allocation would be:(1/2 (1400)/7900) x 1/5= 0.017722, or 1.7722%
I personally see nothing that jumps out at me as a red flag. Now that you know a bit more about this particular agreement, I do suggest that you contact an oil and gas attorney for their advice. All I give is business advice.
Best,
Buddy CottenThank so much Buddy - this is exactly the feedback I needed. And I really appreciate the explanation on how to figure it all out. Once again you're a great resource - thank you!!
Buddy Cotten said:
Dear Ms. Goebel,
This is a very typical production sharing agreement. The reference to "good and valuable consideration" is included to satisfy the law of contract - meaning that consideration must be expressed. In this case, the covenants and promises of the agreement are the moving consideration. No, you are not entitled to a bonus payment. That payment was made some time ago.
For those who do not want to read (or need some help understanding) the attached PSA, the interest owners grant, without any restriction, the right of Sabine to pool lands inside the Williams GU No. 1-A with other lands.
Further in the PSA is a allocation formula for the sharing of the production on wells that are drilled cross units. For example, if you had 1/2 mineral interest in the Williams GU No. 1-A and a new well was drilled, let's call it the Sabine-Williams 1-A PSA that has a lateral length that covers a portion of the Williams GU No. 1-A and other lands and the Sabine-Williams 1-A PSA is formed to encompass 4,000 acres, with a productive drainhole length of 2000 feet in the Williams GU No. 1-A and a total productive drainhole length of 8000 feet. In this case, our 1/2 mineral interest owner in the Williams GU No.1 A would be entitled to (1/2 (2000)/8000) x RI on the lease for the Williams GU No. 1-A. On a 1/5 interest lease, his share would be (1/2 (2000)/8000) x 1/5= 0.025, or 2.5%.
If other wells are drilled that transverse lands in the original Williams GU No 1-A, the allocation formula changes for each horizontal well based on the percentage of productive drainhole length. So, let's drill another well in the PSA super unit. It has a productive lateral length of 7900 feet, of which 1400 feet are in the old Williams GU 1-A.
The formula for that drainhole allocation would be:(1/2 (1400)/7900) x 1/5= 0.017722, or 1.7722%
I personally see nothing that jumps out at me as a red flag. Now that you know a bit more about this particular agreement, I do suggest that you contact an oil and gas attorney for their advice.