Allocation Wells,

Exco has drilled several allocation wells in San Augustine and Shelby county this year.

Any one know how division orders may be done on these wells?

Thanks, Kelly

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Kelly,

Other than the portion of production assigned to each shared unit and your decimal interest ... division orders should be just like any other. If you have a specific unit to look at I can get the plats so we can compare them. I know that the production will be allocated on the percentage of the lateral footage located in each of the 'shared' units. However, they may not assign all of the acreage of the original HA unit into the allocation unit, so, that will have to be considered if you are trying to figure what your DO decimal might be. Am I missing what you are trying to figure out?

Julie

My group is involved in several of the San Augustine County allocation wells, but we haven't received any division orders yet.  Has anyone?  Are they waiting for the RRC to put forth rules?

MSW

There was already a court case and it was held that the RRC can permit allocation wells. RRC does not oversee division orders or royalty payments only permits and production.

Julie,

You are right on point for what I am trying to figure out.

I think I understand decimal interest and lateral footage well enough.
But my concern has been as you stated it "However, they may not assign all of the acreage of the original HA unit into the allocation unit".

So that means one more number in a decimal interest formula. One lease owner could wind up with a nice large percentage and some owners get 0% .

What do you think Exco will do?

Current wells:
40530396 PHILLIPS SU
40530375 IRONOSA SU

New wells:
40530551  GREER - IRONOSA ALLOC --- about 78% IRONOSA
40530553  RED RIVER 164-PHILLIPS ALLOC --- about 36% PHILLIPS
40530556  ADJ MINERALS-IRONOSA ALLOC --- about 21% IRONOSA

Thanks, Kelly

Kelly,

I will retrieve the plats in the morning and we can take a look. I had my eyes dilated today and everything's still blurry right now.

JF

Production is allocated based on how much of the producing portion of the lateral falls inside each lease, so if 50% of the lateral falls in your unit and you had a 10% interest in the unit you would have a 5% interest in the allocation well production.

% of lateral is a good way to do it and may used but it is not the law, because there is no law yet.

A court case in Eagle Ford that could have helped was settled out of court.

IT Is not a RRC thing, but a court thing.

Kelly

Kelly,

What I think Exco might do and what they actually do may be two different things. That being said... I have never heard anyone say anything disparaging about Exco and I think they will do what the state considers 'fair' for the mineral owners and the operators. Exco is taking pains to show, on their plats, how much of a lateral in included in each unit. Hypothetically, a % of production will be assigned to each unit according to the footage found in that unit. Surveying bore paths is a pretty exact science these days so once that footage is determined I wouldn't expect it to change. Once they figure out what % to assign to a particular unit... then everyone in that unit will receive their proportionate share of that production. So, I see it as just adding another factor in the equation. Once you get a DO you should contact owner relations to find out if that is correct so you can check your figures. I'm thinking it won't change your decimal interest because only the part of production attributed to your original unit will be shown on your pay statements. I could be wrong about that, however, because bean counters have a special knack for making things complicated.

I am attaching plats for all the units included in the allocation units you listed. I am adding the plat for Red River 164-Dillard Alloc #1H to make an important point. I misspoke yesterday when I said not all of a unit may be assigned to an allocation unit. I have seen other operators (Anadarko comes to mind) split up existing units and assign a part to different allocation units. That does not appear to be what Exco is doing.

If you look at the plat for the original Red River 164 unit... it is small, weirdly shaped and badly positioned for long bore paths. The only economic way to drill some of the rock contained within that unit is to make up allocation units and extend the lateral into another unit. Using what is now considered extremely short laterals just to drill within the confines of RR 164 would not be feasible because the well would never pay out.

Exco has permits for the RR 164-Phillips Alloc well and for a RR 164-Dillard Alloc well. Everyone in RR 164 will get royalties for a portion of each well. The people in the Phillips Unit will benefit only from their assigned production from the part of the lateral found in the Phillips Unit. Same for the people in the original Dillard Unit. That doesn't seem very fair until you turn it around and consider that they could (I expect they will) drill from the south end of either Phillips or Dillard, including only a short portion of the lateral in the RR 164 Unit, and then those people in Phillips or Dillard would get the lions share while RR 164 people might get a lot less. The whole point of allocation units, though, is to drill rock economically which might otherwise go undeveloped. It is a win for everyone, IMO.

Attachments:

More plats

Attachments:

Julie,

Thanks for the help, you are right that Exco is a good company to deal with.
I have found them even easy to deal with, So they will likely be fair with Allocation.

Kelly

We have some acreage and mineral rights in southern Shelby county and have heard of no drilling interest anywhere around.  Any information on when the gas companies will be interested again?

Which part of the county? XTO still has open permits and Exco also has a couple there now.

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