When oil companies request new drilling and spacing units my percentage of royalties decreases allowing the oil companies to keep more of my royalties. Why is this allowed to happen. My wells are still producing the same amounts and I still own the percentage of royalties that my grandmother left me. There is a flaw in the law somewhere and these oil companies have figured it out so they request increasing the drilling & spacing units so it reduces the amount they have to pay in royalties. Marathon oil is going before the OCC this morning a 8:30 am. Other oil companies have done this on some other sections that I own. I don’t know enough about being a land man to stop them but I am going to bring this to everyone and hopefully get a good topic started. The only law is that they have to drill a new well within a certain time. Then even if it’s a dry hole the spacing remains which allows them to keep more of my money. I’m going to dig on this one until the situation is brought to light to the OCC. Thanks for reading my post. RJ Patterson
Rex: The oil companies are not taking any of your royalty. Even though your decimal interest may change, your are still credited with the total number of mineral acres that your interest represents in the drilling & spacing unit.
An example: Let say you own 5.00 acres of minerals that are subject to a 1/8th royalty oil & gas lease. If all 5 of your acres are in a unit that contains 80.00 acres, your decimal interest in production is calculated as 5/80 X 0.125 or 0.0078125 interest in all of the hydrocarbons produced from that 80.00 acre unit. Now, lets say the unit is 640.00 acres, your decimal interest in production is calculated as 5/640 X 0.125 or 0.0009765625 interest in all of the hydrocarbons production from the 640 acre unit.
Many wells drilled today are using multi-units or putting 2 or more sections together to save money in drilling. You would use the above calculations, but have to add one more factor and that is the percentage of perforations in the wellbore in your section as to the whole wellbore.
Your 5 acres are still 5 acres. Your royalty is still 1/8th. Nobody took anything from you. In fact, you have been “blessed” to have your interest be part of a unit that might contain hydrocarbons in an area that your 5.00 acres are not a part of.
Let me know of you have more questions/concerns.
Respectfully Todd M. Baker
Thank you for explaining that. Rex