Off Lease Question

If wells drilled by our Lessee from one of their adjacent off lease surface locations have horizontal pipelines that cross our property (under lease to the same Lessee) and continue into the total unit our property is part of, will we get royalty payments from the off lease production?


Randy Eiland

Look at the permit and at completion report to see where the frac ppints are. If the frac points are only on the unitized acreage, then all production will be allocated to the unit. If the producing wellbore is partially in unit and partially on other acreage, then the production will be allocated between the tracts. A lot of companies are drilling from an off-site location so that vertical wellbore and the curved portion are not on the unit, but the first frac point is inside the unit.


Below is the explanation sent by the Operator's landman - the "informal plat" he refers to shows two wells on our acreage with lines extending into the adjacent unit we are not a part of - and two wells on the adjacent non unit property extending thru our property and into the acreage that makes up our 636 ac unit - so, based on your explanation I assume our two wells production numbers are shared with the mineral rights owners of the adjacent unit we are not a part of; and the two wells on the adjacent non unit site that extend thru our property and into our unit are shared with us and other mineral rights owners in our unit?

Per our discussion, I have attached an informal plat showing the benefit to the XXXXXX mineral interest by drilling wells from off lease surface locations. As you can see from the plat, with the appropriate surface agreements YYYYYY can drill a longer horizontal portion of each well, which will result in 1-2 additional frac stages per well, and therefore added production both initially and over the life of each well. The explanation is that if drilled from on lease surface locations, by the time the curve is built in the wellbore to the point it is horizontal and ready to be fracked, the first frac stage will be 600+ feet from the lease line, whereas by drilling from off lease surface locations by the time the curve is built we can be ready to frac at or near 200 feet from the lease line, which is the closest distance allowed by the Texas Railroad Commission.

Without seeing the plats, this appears to be fairly straightforward off site well plan. You will not receive any royalties from wells drilled on your surface because all the frac points will be under adjacent unit. You will receive royalties based on 100% of Production from wells drilled on ashaven section because all the frac points will be under your unit acreage. If you own the surface, then you will be paid damages for well pad(s) for offsite wells drilled on your surface. Also ask for pipeline right-of-way fee for length of vertical well bore and portion of curve and horizontal wellbore under your surface. By drilling from off site lixation, there will be more frac points and more production from your wells.