Replies to This Discussion

Permalink Reply by g.s. on February 16, 2012 at 3:28

The major benefit is you may get royalties from a well or wells that wouldn't have otherwise been drilled.  Since units in Texas aren't based on Jeffersonian Townships, you have a lot of odd shaped units that can't effectively be developed with horizontal wells.  A lot of the Haynesville and Cotton Valley horizontal wells are drilled in a generally north/south trend and for a lot of wells to be economic, they need to have a 4000' - 5000'+ horizontal length.  With a production sharing agreement, an operator could drill a well that is long enough and in the optimal orientation.  Without the production sharing agreement, the well might never be drilled and you wouldn't get any royalties.

 

If you owned 80 acres out of a 640 acre unit, you would get 1/8th of all the royalties paid from a well in that unit.  If you sign a PSA your percentage of overall interest may go down.  I think PSA's are typically set up to allocate the production from the well based on how much of the well is in each unit.  If the well was equally divided between the 2 units, your unit would be allocated 1/2 of the production from the well and you would get the same 12.5% of all royalties on the production allocated to your unit.  You could consider that the con to signing the agreement, but I think that that having all the royalty on a well that doesn't get drilled isn't as good as getting some of the royalty on a well that does get drilled.

Permalink Reply by Krkyoldhag on February 21, 2012 at 9:18

Last year I asked what a PSA was...and no real answer...all I found on line was regarding Mid East agreements.

Today I find they are out there in lots of places.  I did not sign the agreement to increase the size of my unit two years ago.  It was not called a PSA.

I will be signing one this week tho.  The choice?  Either sign or have no well.   Will comment more when I read it and know more about it and when and if there is a well drilled on the combined units.