There are quite a few people on here that I respect even though I dont know them. I recently recieved paper on 2 wells where my allocation values dipped below 50%. 25% to be exact. I now wish I would have sold the interests 6 months ago. Im no longer up to date on case law, but from my understanding the remaining 75% is worthless for the lifetime of the wells. Its hard to stomach 50%, but 25% is a punch in the gut. Ive been racking my brain to figure out a way to get paid on 100% and would spend the money in court to battle it, but cant come up with a reason/challenge. Has anoyone had any luck in challenging allocation values that leave the mineral owners with a 75% interest that will likely never be used due to the court ordered allocations? I know some of the responses might be about the increased production due to horizontal drilling and without that, the wells wouldnt be drilled, lets go ahead and save the time in posting those responses. Thank you for your time. Bob
Bob- I’m sure the 2 wells are part of a multi-unit horizontal well (Unit greater than 640 acres). Your minerals will not only get 25% of the produced hydrocarbons from your section, but will also receive 25% of the produced hydrocarbons from the other section(s). Another way to look at it is you are sharing in 25% of the production from any and all perforations in each wellbore, regardless of where those perforations are. OR you are getting 100% of the production from that portion of the wellbore that is in your section, which happens to be 25% of the overall production. You may not want to believe it, but it is the only “equitable” way to do production from more than one unit. 100% of 1 unit is the exact same as 50% of 2 units. (Just like a 2:1 stock split. Twice as many shares, 1/2 the price) An no, the remaining 75% is no more worthless after, than before these wells are drilled. Most likely, if the formation underlies the remaining 75% of your minerals, more wells will be drilled resulting in production from that portion that was not part of the original 2 wells.
Does that help?
Thanks Todd, youre most certainly included in the people that I respect on here. Guess Im hung up on looking at it like this. 6 months ago, if I would have sold arti into 25 acres in 1 section and 30 acres in the other for the offer of 10k an acre, that would be $550k. Now that the orders have been approved. Using the numbers above, Im lookin at 25% allocation, “needing” to make up for the $412,500.00 at 75% to break even. I just dont see that happening. Both sections were pooled for 2 formations. Ive had several 50/50 sections, with wells #2-3 drilled over the last 10 years, but Ive yet to have a section where the remaining interest was picked up. Guess its just a waiting game, but Ive never been a patient person. Thank you for your time Todd
Bob- I believe that you are still confused. Let’s try it this way. The 50/50 designation is for a multi-unit wellbore (2 sections). So one section gets 50% of the production and the other section gets 50% of the production. The wellbore is 10,560’ long (not really, but for this example) for a 2 section horizontal. If the wellbore was only under your section, it would be 5,280’ long and your section would get 100% of the production. I can’t explain the 75/25 scenario without knowing which section your minerals are a part of. Hope this helps.
A critical missing piece of information here is location. What state and what well(s)? Allocation in Texas may have different rules than allocation in OK or elsewhere. A well may have been planned to be 50/50 across two sections, but had mechanical trouble which shortened it. The remainder of the acreage might be just fine. Various other scenarios come to mind. Further information would make answering easier.