Good Morning!
I have min rights in these two wells, Green Acres & Triple Rimmer. However, my language and knowledge skill in this "gas & oil" capacity is limited. So much of the language I've read on this forum is "greek" to me. Can someone please explain to me, how it is determined what is paid in "royalty" and also, why is it taking so long to get paid on these two wells??? Does anyone know of expected disbursement dates? I've been hearing about these wells for almost a year now. I believe the proof is in the pudding. So far, no proof. Maybe I am just lacking the skill to understand the dynamics & more importantly to me, the pay off. Someone please help me understand. THANKS in advance.
~ Kat
Kat,
How much of the sales proceeds do I get? When will I get paid? The Payoff?
How much of the sales proceeds do I get? This is your RI, or Royalty Interest in the well
Basically you need three things to accurately calculate your interest in a well in most cases.
1) The spacing unit size that the well is producing from.
2) Your Net Mineral Acreage (NMA) of that spacing unit.
3) The percentage (or commission) you agreed on as payment to be paid to you based on the sales price.
We’ll look at the Green Acres well. 1) The spacing order (#611235) set this at the full section of 640 acres. 2) How many acres do you own? If you own 1/25 of the NW4 of the NE4 of 36-7N-5W, you have 1.6 acres or NMA. (NW4 of NE4 is 40 acres * 1/25 or 40/25=1.6)
NMA/UNIT = Net Mineral Interest or 1.6/640 .0025
So if the well produces 6400 barrels of oil in a month, 16 of those barrels are attributed to your property. They were yours. Production * NMI or 6400 * .0025 = 16. But you made a deal with the oil company. You said in your lease you would give them the oil and take a 3/16 (18.75%) commission or RI. You agreed to give them the remaining 81.25% of the sale price in exchange for them to spending $9 Million on drilling the well and operating it.
So now we take your NMI * RI or .0025 * .1875 = .000469 This is the Royalty Interest or Decimal interest in this well bore called the Green Acres 1-36H.
So NMA\UNIT*RI or 1.6\640*.1875= .000469
If they sell 200 barrels a day the first 180 days @ $100 a barrel, the sales would be $3.6Milllion.
3,600,000 * .000469 = $1688.40 for your gross payment.
So rounded off you can figure $1000 per acre the first 6 months BASED ON OIL SALES ONLY at an average rate of 200 barrels per day.
The Triple Rimmer is a bit more complicated. It is a multi-unit well involving two 640 acres units. It is not a 1280 acre unit, but two 640 acres units.
The calculations are the same as above but that will only calculation your interest in the well bore “that is contributed to your unit”.
The well bore travels across two sections. They use the survey of the length of the perforated laterals in each section to determine how much of the production is assigned to each unit. We can look at the survey in cause number 201307036 to see what this looks like because the final order has not been issued.
Section 26 has a length of 4899’ and Section 35 has a length of 4492’
So 26 is 4899/(4899+4492) or .52167 or 52.167% of the production
And 35 is 4492/(4899+4492) or .47833 or 47.833% of the production
So using the same numbers as the Green acre well, multiply your UNIT Royalty Interest x the production split.
So if you own the 1.6 NMA in section 26
.000469 * .52167 = .00024453 well bore RI
If that ownership is in section 35 then
.000469 * .47833 = .00022421 well bore RI
When will I get paid?
State law requires the companies to issue the first check within 6 months of the first sale date. The penalty for not paying is 12% interest (or 6% if you have non-marketable title. It does take a bit of time to run the title background to ensure the numbers are correct. However, I don’t think enough effort has been placed on the task by the oil companies. Our Legislators must agree or they would not have created the statutes. But obviously it has been that way a long time.
I am seeing the first payments typically issues in 5-8 months from the first sale date.
Green Acres first sale was 02/03/2014 So you receive division orders and a check very soon. Continental has been doing a better job recently, but I’m sure it is on a well-by-well basis.
Triple Rimmer first sale was 5/17/2014 So you should have a check before Thanksgiving.
The payment amounts are going to depend on the amount of product produced. It is way too early to guess and in the long term, oil and gas prices will greatly impact the check issued.
The Green acres produced about 400 barrels a day the first full month and 300 a day the next two. THIS WILL DECLINE STEEPLY over the next 2-3 years. So since the number above were based on 200bopd, you can add about 50% and get close on the Green Acres well.
1 Like
Well said Rick!
Thanks so much, Rick, for the detailed explanation. I'm sure I'm not the only one out here who doesn't really have the knack for this lingo and computations ... and how it all works. But I'm giving it an effort to understand.
I have 11 acres on both wells. On Rimmer I'm on the low side in Section 35.
Again, THANKS for your help!
~ Kat
Kat,
It is common enough question to justify spending a bit of extra time to try to detail it.
Just be glad you are not at the bottom end of a 83-17% split we were looking at the other day!
Thanks Darla! I'll see if I can work on it some more when I get time.
Darla Charlow Ragland said:
Well said Rick!
Nice explanation!