Question for the experts:

My neighbors and I have noticed that our individual mineral interests on the latest royalty check stubs changed to a lower number. This is puzzling because the one thing that, we assumed, would be a constant is our mineral interest in the unit.
The size of our property does not change, nor does our percent of royalty. (25%)
What circumstances would cause our mineral interest or "payment decimal" (shown on our division orders) suddenly change to a lower number on our royalty payments?
 
Naturally, the price of NG changes as does the volume sold, which tabulates the net value but why would our interest in the production vary?
I did write to the Operator and the initial reply was.. "I have no idea". My reply that that was to request a referral to someone who would have an idea and could explain it. That request was sent to someone in "Production" and they sent the question to someone in "Revenue Inquiry" and copied to "Owner Inquiry DO" but there has been no response so far.
  • My neighbors and I own property in only one unit. T 15 R 14 S19
  • If the unit size (642) has increased, we are not aware of it.
  • As per our lease agreement, there are no deductions by the operator.
 
There may be a logical explanation to this and we would really appreciate knowing the reason. Among the illustrious collection of experts within the halls of the GHS, would someone please help us with this mystery?
Thanks so much.
 

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LP, does the royalty check stub show the size of your tract in acres? If yes - has that changed? If no - there may have been a correction in the tract size. There may have also been a correction to the total unit size but that should not make a significant difference in your tract percentage.
You may have already done this, but I would also suggest sending a certified written notice to both the Revenue Inquiry and Owner Inquiry DO departs asking an explination as to why the payment decimal has been lowered and that barring an acceptable exlination from your operator that you demand that the original (higher) payment decimal be used for all future royalty calculations and that it also be back-dated so that they will reimburse you for the royalty revenue loss from that last check.
LP, how significant was the change.........from what to what??
Hey Guys,
First....thank you so much for helping me.
To answer the questions:
The check stub does not show the tract size in acres. Just decimal size.
The difference (for me) only amounts to about $20 but would be more for those with larger property size. My neighbors on either side of me have the same decrease on the payment.
My Division Orders show my mineral interest decimal size as 0.00054309
The payments for Sept and Oct were calculated on my mineral interest as being .00054309.
The recent check paid on the basis of .00050569
My property size is 1.395 acres. My royalty is 25%. The unit size is 642.160000
It is my opinion that a letter of explanation accompanying a new Division Order should have preceded a change on the actual monthly payment. I like the written certified letter demanding an explanation and payment based an the Division Order in force.
I appreciate the advice. I have very guarded trust in our operator since they attempted to short me on my property size in the initial lease negotiations and then again on the division orders.
Apparently this is common practice with them when they can get away with it. However...they need to revise their assumed demographics when it comes to me.
Isn't the following one possible scenario? If more mineral owners are discovered after division orders and royalty payments begin, wouldn't the previously stated mineral interests have to be adjusted? Then again maybe not, that scenario would only affect LP if the newly discovered interests directly subtracted from his share of his minerals, right? Are unit sizes ever adjusted after division orders?
Ledlights,
Your scenario is close. I did receive an answer from the operator and it does make sense. I will copy and paste the answer, leaving the name of the operator blank.

The payment decimal keeps changing due to marketing makeup in the well. When this well had first production, there were some working interest owners that were not shown as marketing their gas with (blank) so they did not receive revenue for their portion of gas. Their portion of gas was being sold by (blank) so (blank), and the owners that burden (blank), were receiving more volume than they should have. (blank), and the owners that burden (blank), were receiving a higher payment decimal (inflated payment decimal) than their title interest.

Now the working interest owners that were not originally marketing with (blank) are marketing their portion of gas with us and have requested “makeup” for the volume they did not initially receive. So when an owner is in makeup they receive a higher payment decimal to pay them more of current volumes to make up for the volume they did not receive and the owners (blank and their burdens) that had been getting an inflated payment decimal now get a paid with a lower payment decimal until all the volume is paid back to the working interest owners.
So with the first few checks, were you getting more than the original DO specified?
I am also puzzled by my last check statement. This is the senario, 2 wells drilled on the same pad both selling for the same time period into the same pipeline. Two different prices paid on the gas sold. I know there should be a logical explanation but I just don't know.
This makeup senario is quite common with the major gas companies. YOu in a sense were given an interest free loan from the WI who were slow to return paperwork.
LP:

Completely disagree with operator's statement.

Based upon your cited values, your initial Unit RI figure is correct; this is what you should be paid on. The tract size, your ownership interest in the tract, your royalty (contracted), and the unit size is all that matters. If you are leased to the operator, they should have no problems paying your full interest.

The only common scenario in which this could vary is if the lease has been partially assigned or held by another WI partner which may or may not be marketing their gas separately, and they are responsible for paying their portion of the lease burdens (including their proportionate share of the royalty). Normally, if the operator performs the accounting functions for the well (including taking in revenues from gross sales), the operator pays the royalties (saves a step of paying the WI owners, then having them pay burdens; the operator just pays the royalties due and 'nets' the accrued NRI to the WI partner). Still, this interest does not just 'vanish', the other 0.00003740 needs to be paid to you by that WI owner (it's approximately 6.89% of your RI). Just because WI owners weren't getting paid does not change your RI (and does not change your Unit RI). Find out who this party is (or these parties are) and seek out your interest. If they keep up with the shadow games, you may wish to file a declaration of interest, and demand (in writing) full payment for your back royalties. If someone else in involved, demand full payment from all parties claiming a working interest in your lease.

One thing is for certain. You were not overpaid on your royalty, unless something changed (a unit survey, perhaps?). There is nothing to deduct from your interest. You may just need to track down possible other owners of your lease and hold their feet to the fire.

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