I have just received a Production Sharing Agreement from XTO in Martin Co. In it they want to drill three new wells Defined as sharing wells. However by signing this agreement I would have my interest adjusted by an “allocation factor” of 50%. Is this standard? It does not make sense to me to sign on to such an agreement to receive 1/2 my interest.
@brat This is because the interest you own is being drilled right on the border of the drilling unit next to you. So to make this fair, for a lack of a better term, they allocate half the production to your unit and the other half to the adjacent unit. These wells will have the name “allocation” in them. You are not getting half your interest, think about it as you have your full interest in the drilling unit and half the wellbore is crossing & producing from your unit.