Does commingling benefit the mineral owner?

[jdub]

I (a mineral owner) received letter from operator (in Texas) saying they are applying “for Exception to Statewide Rule 26 and/or Commingle Permit” for some wells on my lease.

Accompanying their cover letter to me was a copy of Form P-17 which contained the following statements:

“The royalty interests and working interests are not the same with respect to identity and percentage; and the production stream from each tract and each Commission-designated reservoir is not measured separately therefore, I have provided the required 21-day notice pursuant to subsection (d) of Rule 26.”

“Production will be allocated by W-10 (oil)”.

NOTE: This involves a “Unit” established in 1969 so those previous wells are about 50 years old. Several new vertical wells on my lease have fairly recently been drilled on the surface of that Unit but have completion depths that are BELOW that unit so THEY ARE NOT A PART OF THAT UNIT. These wells were drilled by the operator who is submitting this Form P-17.

1. Can someone explain to me what commingling is?

2. What are pros and cons for the mineral owner of agreeing to commingling?

3. What are pros and cons of commingling for the operator?

4. Should I ask operator:

   4a. How often the volumes for the wells will be tested? (Is monthly better than annually for me, the mineral owner?)

   4b. For an explanation of HOW the volumes from my wells will be tested? (How would I, as mineral owner WANT them to be tested?

5. How to determine (as a mineral owner) if this is good for me …… or whether I should file an objection to this. 5a. If I should file an objection is that process complicated and would I need to get an attorney involved? Letter said “effected parties have 21 days from the date of notice to file objection with the Railroad Commission of Texas”. That deadline is rapidly approaching. I’d appreciate any advice that can be provided. Thanks.

[Steve_Durrett]

In short, commingling is combining two or more production streams that would otherwise be required to remain separate. The benefit to the Operator is that it lowers their costs. Indirectly, the mineral owners would benefit because the wells can produce longer when the costs are lower.

The frequency of testing will be dictated by the RRC. The more frequently that testing occurs, the more accurate the allocation will be. Newer wells generally have a steeper decline rate and should be tested more often, whereas more mature wells are much more stable and frequent testing isn’t as necessary.