My lease is HBP, so shouldn’t new wells have the same royalty?

Unfortunately for me, my inherited mineral lease (without a Pugh Clause) is held by production by a previous oil well. So, it is my understanding that I’m locked into the royalty of the original lease when a new producing well comes in. But, I got my division order for my new Haynesville Shale well and it is apparent that only a 1/20th (5%) royalty was used for the decimal interest calculation – way lower than the original royalty! Can anyone explain why this would happen?

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Permalink Reply by Hale Yayuh on June 19, 2011 at 15:50
No, not without reading all of your lease language and other title documents. It could easily be you are missing something. Go see an oil and gas lawyer.
Permalink Reply by Wonderland on June 19, 2011 at 19:27
Could the unit be larger on your Haynesville Shale well?
Permalink Reply by Varice Mire on June 19, 2011 at 20:05

The acreage of the new Haynesville Shale unit is taken into account along with my property acreage. The other factor left in the calculation of the decimal interest is the royalty. To derive the decimal interest proposed in my division order, a royalty of only 1/20th (5%) was used.

Permalink Reply by Hale Yayuh on June 19, 2011 at 21:45
Actually, forget the lawyer for now, call the paying company and ask them to explain the calculation.
Permalink Reply by Varice Mire on June 20, 2011 at 14:19

I called them this afternoon. I finally got in touch with a real person after several minutes of menu diving and waiting on hold. This person did not have a clue as to why the decimal interest of the DO they sent to me was so far off. He tried to pull up a spreadsheet used for the decimal interest calculation, but he could not find it. He said he would have to “kick it up to an analyst” who would call me back later.

Permalink Reply by Henry on June 19, 2011 at 23:13

Varice,

Some people, who leased to CHK, receive 20% of their payment from Plains and 80% from CHK under the Joint Venture agreement of 2008.  I don't know if this applies to you or not.  These people signed a lease with CHK, but under terms of the JV, CHK sold 20% of their holdings to Plains.  So these people receive checks from two different companies each month.  This might explain why you get a 5% royalty from one company (is it Plains?), and you might soon receive the other 20% royalty from CHK.

Permalink Reply by kittycatmama on June 20, 2011 at 4:14
Henry,  I just saw  in Desoto Records that Chesapeake is selling percentages in some wells to a company named Larchmont. Had not seen any sales to this company before. Saw the Plains
Permalink Reply by a on June 20, 2011 at 4:24
larchmont is owed by the ceo of chesapeake audrey mcclendon
Permalink Reply by Skip Peel - Mineral Consultant on June 20, 2011 at 4:36
Aubrey has a participation agreement in his employment contract that allows him to purchase a 2.5% interest in any and all wells drilled by the corporation.
Permalink Reply by kittycatmama on June 20, 2011 at 5:12
interesting. This name is showing up just recently in Desoto records as owning percentages of wells
Permalink Reply by Hale Yayuh on June 20, 2011 at 16:33
It is Aubrey McClendon's private company, he is CEO of Chesapeake. He has a sweetheart deal. Of course, he is not immune to making monumental mistakes.
Permalink Reply by Spring Branch,mineral owner on June 20, 2011 at 10:34
Henry, if the lady has an old lease that is HBP and doesn't have a Pugh Clause, you can bet it is not a quarter royalty lease.

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