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Permalink Reply by adubu on October 19, 2010 at 0:47

Coyote--- HAVE YOU RECEIVE YOUR DO TO SIGN YET?

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Permalink Reply by Coyote Ugly on October 19, 2010 at 11:34

Say what?

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Permalink Reply by adubu on October 19, 2010 at 11:39

Coyote---I was asking if you had received a DO (Division Order) to sign yet?

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Permalink Reply by Coyote Ugly on October 19, 2010 at 22:23

Sorry for my ignorance adubu. Now I understand you question. No, I have not received a DO. I'm not nearly to that point yet.

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Permalink Reply by Dion Warr, CPL on October 19, 2010 at 8:20

Coyote:

I'm answering your questions from the point of view of what happens in LA within a unit formed by the Office of Conservation, Department of Natural Resources.

Your acreage (as computed within a unit formed by a Field Order issued by DNR-OOC) is determined by a survey of the entire unit. This is to ensure that 'everyone gets measured by the same stick'. Otherwise, the various individual owners may ceaselessly argue as to how many acres they own.

Upon the results of that survey, each tract shall be assigned a tract number and an acreage amount, which shall be used to compute the extent as to each tract's participation in the unit. This acreage is tabulated based upon the surveys of all tracts within the unit, as well as 'found-in-place' materials in the field (e.g., property corners, iron posts, centerlines of roads, creeks, bayous, etc.) and is computed based on actual surface area irrespective of any other documentation (e.g., leases, property sales, etc.) The plat shall also a total acreage computed for the unit (which in the HS area is generally not 640 acres EXACTLY). From this, the contribution of each tract to the unit is simply the tract acreage divided by the total unit acreage. This decimal is known as the tract participation or tract participation factor. To give an example, although you may have signed a lease that cited your tract to be 30 acres, more or less, and you claim to own 35 acres by deed or cash sale, if the unit survey plat shows that you own 32.000 acres in a 640.000 acre unit (to make the math easy), your tract participation factor will be 32.000/640.000 = 0.05000000.

For each tract, the ownership is determined based upon abstracts of title which are researched and assembled based upon the research of the records of the parish in wish the tract is located, at the very least. Sometimes, based upon prior experience, or at the specific direction of the title examiner, research of records of other parishes or counties, as well as any title curative will also be included in or with the supplied abstract (for successions of owners known who lived in other parishes, for example). This ownership is determined by a title attorney based upon the examination of the title materials supplied, and is known as a title opinion ("TO"). The title opinion will set forth the ownership of surface, minerals, and royalty, as well as ownership of the leasehold, along with any burdens tied to the lease (such as overriding royalties, for instance). For your tract (again, as an example), The title examiner may issue an opinion as follows (extremely paraphrased, TO's can be a few pages to seemingly a volume):

Surface Ownership: Coyote Ugly 100%
Mineral Ownership: Coyote Ugly 100%
Royalty Ownership: Coyote Ugly 25% (note: royalty is free of all costs...)

Lease Owner: XYZ Oil Company, 100% (also called Working Interest)
Lease Burdens: ORI - T-Bob & Associates,
being 1% of 8/8ths of production paid by XYZ Oil Co.

One's ownership in the unit is proportionately reduced by the tract participation factor. Thus your royalty interest in the above example would be 0.25 x 0.05000000 = 0.01250000. The unit division of interest is prepared by utilizing the figures from the unit survey plat and the various TOs, and is usually computed and recapitulated on a tract-by-tract basis to account for all interest. Again, to complete the example:

Tract X: TPF = 0.05000000
Owner / Owner Type / Unit Interest / Calculation
Coyote Ugly: / RI / 0.01250000 / {100% x 25% x 0.05000000}
T-Bob & Assoc.: / ORI / 0.00050000 / {(100% x 1% x 8/8) x 0.05000000}
XYZ Oil Company / NWI / 0.03700000 / {100% x [75% - (1% x 8/8)] x 0.05000000}
TOTAL: / (ALL) / 0.05000000

Be aware that by contract, the acreage stated in the lease is what will be used for calculation of lease bonus, rentals, extension payments, or other payments dictated by the lease. Royalties are paid strictly off of the acreage listed on the unit plat.

There are other things that happen with other units (pooled, declared or voluntary units) or lease wells, but those are typically inapplicable for the HA discussion.

Hope this helps to answer more questions than I might have raised.

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Permalink Reply by FXEF on October 19, 2010 at 8:45

Dion,

Very informative information, thanks. Where can a Louisiana mineral owner obtain an unit survey plat for their section?

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Permalink Reply by Linda Whatley on October 19, 2010 at 9:13

Good question FXEF. I'd like to know that too.

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Permalink Reply by Dion Warr, CPL on October 19, 2010 at 9:29

FXEF:

Office of Conservation. A copy of any such unit survey plat is to be filed with their office.

I will caution you that based upon the scope of activity at the moment, the companies may not have any one unit survey commissioned by the date of first production. In such cases, the companies will generally set up their royalty and revenue decks based upon estimated acreages (CAD calculations, etc.) until the survey is completed. Then, they will 'adjust' the payments by netting out against any overpayments and catching up on underpayments. CAD surveys are usually based upon existing tract surveys and 'best-fit', and are rarely that far off.

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Permalink Reply by adubu on October 19, 2010 at 10:29

Coyote--- To clarify my early post answers and comments----My comments are more in line for the Texas side mineral owners rather than La. since La. law are different in that I understand if minerals not HBP or leased that at the end of 10 years they revert back to surface owner. In Texas they can be held as separate property for ever from surface. Therefore takes more time to run title back as far as records can go. Therefore I assume now you are in La. the comment by Dion Warr 2 should answer your question better. You can take my comment as basic principal and Title run easier and only back 10 years if no production on land. If their has been production that no longer is enough to HBP the minerals then this adds to title opinion to clarify present owners of minerals. Hope this did not confuse you

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Permalink Reply by Coyote Ugly on October 19, 2010 at 11:36

Thanks adubu, Dion et.al. You have really helped me out. You have relieved my feeble mind more than you know. Thanks again.

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