Replies to This Discussion

Permalink Reply by Two Dogs, Pirate on March 6, 2009 at 4:47

Les this land is in Arkansas.

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Permalink Reply by Les Bamburg on March 6, 2009 at 4:51

Two Dogs, thanks - I deleted my response.

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Permalink Reply by Two Dogs, Pirate on March 6, 2009 at 4:55

Ain't go no one unleased up there, the clerk of court will sign the lease for you.

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Permalink Reply by Skip Peel - Mineral Consultant on March 6, 2009 at 7:35

WayneandAnna. The state will designate Co. A or B as the "unit operator". Let's say it's A. A now draws up the development plan, sets the drilling schedule, chooses the contractors, over sees and is responsible for the production of the minerals underlying that 640 acres. A and B share the costs and production based on a joint venture agreement. Not necessarily based on the 40%/25% split in your example. A and B get 100% of the minerals produced. They pay all lessors (regardless of which company they are leased to) based on the individual lease agreements. Those lessors receive the royalty percentage stated in their lease from the very first mcf of gas sold. The unleased mineral owners (who have received no bonus payment but are entitled to 100% of their proportional share of production based on their acres within the unit) receive payment after Co. A & B have recovered their cost associated with the initial production (first well). The unleased mineral interests will also pay their share of continuing costs to cover production by way of deductions from their proportional share of the minerals. And the process is repeated for each additional well drilled in the unit. Even though we are dealing with a hypothetical example here, let me state that I know of no operator who would develop a unit that had 35% of the acres unleased.

This topic has been discussed many times on the site. And my response is meant to be simple and far from comprehensive of all the possible scenarios. And it is a LA. example. It is always a good idea to identify the general location of a mineral interest as the laws are significantly different by state. There are some members who have a special interest in this area and are quite knowledgeable. I suggest you look through some of KB's comments on the subject. There is so much more to it than my brief example. Good Luck.

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Permalink Reply by Skip Peel - Mineral Consultant on March 6, 2009 at 15:02

Sorry, KB. I forgot. Rest in Peace, De Nada. We really should have a blog for this and a few other related topics. Do you know if it's covered in any of the permanent articles? It's been a while since I reviewed them. Since the site is under going reorganization, this might be a good time to fill in any missing pieces of the puzzle. Even if the blog post is merely a list of links to appropriate content.

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Permalink Reply by WayneandAnna on March 6, 2009 at 13:57

Skip Peel, thank you for taking the time to write out a detailed answer. Very informative.

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Permalink Reply by john goodday on July 24, 2009 at 11:01

It's a good thing you live in LA. The law in AR is very different for un-leased mineral owners. You are subject to a 400% penalty - you need to review the unitization laws and integration matters of the Arkansas Oil & Gas Commission before allowing people to believe otherwise.

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Permalink Reply by xMarkstheSpot on March 6, 2009 at 18:12

I think each party receives their interest as the gas is depleted.

I see it like a partnership where each partner receives a share of the partnership's net income based on their partnership interest. The net income being paid out is after expenses. In your question, Company A and B's operational expenses are paid out of total production. The remaining 'net income' is then distributed amongst each party according to their interests.

I'm no expert though!

cheers!

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Permalink Reply by WayneandAnna on July 24, 2009 at 11:25

In Arkansas if the mineral rights owners cannot be found, the unfound owner's royalties are placed in escrow for five years. Then it goes to the state. So, as is, the state has no interest in helping surface rights owners regain their lost mineral rights.

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