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Permalink Reply by Skip Peel - Mineral Consultant on April 5, 2018 at 3:35

katherine, are you referring to a notice letter for new wells?  If so, what company?  Who told you about payment of half production?  What this sounds like is a spacing request for two Cross Unit Horizontal wells (HC) producing from two adjacent sections, probably Section 33 - 17N - 16W and Section 4 - 16N - 16W.  When the wells are completed and in production, the operator will turn in a report to the state with the "as-drilled" length of the well lateral with the linear feet and percentage of the total feet that lies in each section (unit).  Production volume is allocated to each unit based this report and all mineral interests in each section will share in that portion of the total well production.

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Permalink Reply by katherine dykes on April 5, 2018 at 4:23

SKIP WE RECEIVED A PRE APPLICATION NOTICE FOR ENSIGHT ENERGY WHO WILL HAVE A SURFACE LOCATION IN SECTION 9 AND DRILL TWO HORIZONTALS ACROSS SECTION 4 AND 33. WE HAVE 238 ACRES IN 33 T17N R16W. 1 CALLED THE NUMBER ON THE NOTIFICATION AND ASKED HOW MINERAL OWNERS WOULD BE PAID AND HE SAID OFF HALF THE VOLUME OF EACH HORIZONTAL. STILL DONT UNDERSTAND AT WHAT PERCENTAGE

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Permalink Reply by Skip Peel - Mineral Consultant on April 5, 2018 at 4:31

The fact that Ensight is stating half of royalties going to Section 33 and half to Section 4 may indicate that the planned horizontal wells will have equal lengths in each section.  What really matters is how many feet are in each section after the wells are actually drilled and completed.  Regardless mineral owners in sections 33 and 4 will be allocated production based on the percentage of each lateral that is ends up actually producing with their section.  It would be 50/50 or 60/40 depending on how the wells are drilled.  There is no way to know the exact percentage at this time.  The person you spoke with is giving you an estimate.

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Permalink Reply by katherine dykes on April 5, 2018 at 4:39

THANKS FOR INFO. THEY WILL HAVE A CONFERENCE APRIL 18 ONLY  IF REQUESTED  BY INTERESTED PARTY. AT THIS POINT DID NOT KNOW ENOUGH TO KNOW WHAT TO ASK

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Permalink Reply by Skip Peel - Mineral Consultant on April 5, 2018 at 4:46

katherine, don't worry about the conference.  Rarely are they ever held because interested parties rarely request one.  This is a formality required to get on the public hearing schedule for the Commissioner of Conservation to approve the spacing for these two wells.  Ensight IV formed the drilling unit for sections 4 & 5 in an earlier application approved last month.

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Permalink Reply by katherine dykes on April 5, 2018 at 4:49

THANKS AGAIN YOU HAVE BEEN SO HELPFUL

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Permalink Reply by katherine dykes on April 5, 2018 at 5:25

Skip I understand that the percentage of production cannot not be calculated now but when it is what percentage  of that is paid to mineral owner. for an example in a lease you may have 20 or 25 percent

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Permalink Reply by Skip Peel - Mineral Consultant on April 5, 2018 at 5:44

katherine, you are in a drilling unit.  You have a decimal interest in the unit production  based on the number of total acres in the unit, the mineral acres you own and the royalty fraction in your lease.  It would look something like this:  238 divided by 640 (approximate) = 0.371875 times .25 (if you have a quarter royalty) = 0.0929787.  That last fraction would be your decimal interest.  The percentage of the lateral in your section would be allocated to your unit.  You would received royalty based on that allocated production volume, the price per mcf paid for the gas times that decimal.

If 1000 mcf were produced from a lateral lying in two sections with 60% of the lateral in A and 40% in B, then A would be allocated 600 mcf and B 400 mcf.  Then each section (unit) would get their share of that allocation.

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Permalink Reply by katherine dykes on April 5, 2018 at 6:16

We leased our 238 to Blue Ribbon and the lease expires in oct 2018. Blue ribbon bankrupted not sure who has lease. so if our lease is 20 percent is that what we are paid and if lease expires then what

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Permalink Reply by Skip Peel - Mineral Consultant on April 5, 2018 at 6:22

Blue Ribbon has assigned your lease to Ensight IV Energy.  Your royalty fraction of one fifth, 20% is in force as long as the lease is in its primary term.  If Ensight does not drill a well prior to your lease expiration date, your current lease is terminated and Ensight would have to offer you a new lease.  I don't think will happen.  I think Ensight will drill these two wells before any of the leases in your section expire.

Permalink Reply by Bob Zimmerman on April 5, 2018 at 5:17

In any case, would not a fee landowner in a cross unit well be paid royalty commensurate with their per cent acreage in the entire well?

And should the operator stage well production, would inequities be the result such as this:

<picture 3 contiguous units, each having say 5000 feet of wellbore making a 15000 foot cross unit well. the operator frac's the entire unit which is farthest from the wellhead, and nothing in the other 2 units. who gets paid all of the royalties? the frac'd unit of course.

after 5 years, the well is only producing a small amount of gas, so the operator frac's the middle unit. who gets paid the royalties? 50% to each unit.

5 more years, the well is depleted again and they frac the last unit. each unit now gets 30% of the remaining gas.

the first unit gets around 55% of the gas, the last one gets around 9%.

why would an operator do this? perhaps the first unit has a lower average royalty burden, or even better...the operator may own a portion of the mineral rights in that first unit, giving themselves the lions share of the gas without a royalty burden.

it's a pretty slick way to scam mineral owners out of more of their gas. if the royalty is apportioned according to the length of lateral whether frac'd or not, it would be fair, but that's not the way it's gonna be done, cuz they're the operator, and they'll be controlling the development of the well.

and how will the mineral owner know if this is being done in his unit? if he's smart he might figure it out, but if he has signed an agreement allowing this, there'll be nothing he can do>>>

http://www.naturalgasforums.com/smf/index.php?topic=23900.0

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Permalink Reply by Skip Peel - Mineral Consultant on April 5, 2018 at 6:08

Bob, fee ownership is not relevant.  For those members unfamiliar with the term, ownership in "fee" means owning both the surface and the mineral rights.  A mineral servitude owner with no surface interest is treated the same as a fee owner in regard to royalty.

The State of Louisiana requires production from cross unit later wells (designated as HC) to be allocated by the percentage of linear feet of perforated lateral lying within each unit boundary.  Speculation as to allocation percentage prior to drilling and completing a well is a waste of time as it is merely theoretical.  When the well operator submits the "as drilled" well plat to the state, they include a "perf" letter that states the entire completed lateral length in linear feet, the linear feet lying in each unit and the percentage of production allocated to each unit.

You cut-and-paste excerpt from natural gas forums would be a real outlier, not a practical example.

Here is a sample Perf Letter.

PERF%20LETTER%20SAMPLE.pdf

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