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Permalink Reply by Skip Peel - Mineral Consultant on July 17, 2017 at 5:19

Cross Unit Lateral wells, the state denotes them with "HC" in the name, do not effect royalties from existing "non-HC" unit wells.  When a company drills and completes an HC well, they file an "as drilled" form with the state.  The report gives the length of the perforated portion of the lateral and the linear feet that lie in each unit.  The report also provides a percentage of production that well be allocated to each section.

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Permalink Reply by Steverino86 on July 19, 2017 at 2:57

SS, just to add to what Skip said, you will get a division order showing the number of acres in both sections, as well as an "allocation factor" based on the number of linear feet of the wellbore in each of those sections. Your decimal wil be based on your acreage in one or both sections, times the allocation factor, times your royalty percentage. I tried to copy and paste CHK's sample formula I just received in my division order, but could not. About 49% of the wellbore was in my section, and about 51% was in the other section, therefore I'm getting a little less than half my normal royalty. Hope that helps.

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Permalink Reply by Skip Peel - Mineral Consultant on July 19, 2017 at 4:17

SS and Steverino,  the allocation formula is straight forward however I think it is time to point out a lurking problem.  I have received a number of questions on the subject of royalty for HC wells.  Even though the correct formula is used inaccuracies can, and do, arise from improper unit surveys.  Any mineral owner or their representative should be able to go to the state database, SONRIS, and get a copy of their unit survey.  A proper survey provides the exact size in acres of the unit and of each individual tract within the unit.  The plat has the names of the mineral owners, their tract acreage and the percentage of the tract's interest in the unit.  The problem is this:  the majority of unit survey plats are not entered in the database.  This has been the case for a number of years since the units began production but has become a serious concern with the advent of production from and royalties paid on HC wells. 

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Permalink Reply by Steverino86 on July 19, 2017 at 4:24

Yep, mine is off slightly, in my favor. Of course we're dealing with CHK, and they use whatever decimal they want, then manipulate the volume to make it come out somewhere in the neighborhood of correct. Geez, it never ends with those guys.

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Permalink Reply by Skip Peel - Mineral Consultant on July 19, 2017 at 4:28

Yep, Chesapeake has cut a lot of corners with their Haynesville operations however the problem with missing and in some cases inaccurate surveys is one shared by all the Haynesville shale companies.

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Permalink Reply by Steverino86 on July 19, 2017 at 8:22

Ah, just realized they figured my royalty using the allocation factor for unit B, and my acreage is in Unit A. So, they either got the allocations between the units reversed, or just used the wrong section(B)allocation on my division order.

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Permalink Reply by Skip Peel - Mineral Consultant on July 19, 2017 at 8:51

Good catch.  Ever wonder how many of the allocation calculations may be incorrect?

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Permalink Reply by Steverino86 on July 19, 2017 at 11:45

More than I care to know, I'm sure.

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