What is a Plan of Unitization? How does the mineral right owner get paid? We have been approached to participate in a Plan of Unitization for a property in Creek County OK. The company, Rover Petroleum, wants to develop the South Stroud Prue Sand. I understand that we’re being asked to pay for the wells, but what do we get in exchange? It’s not clear to me how we get paid.
I am going to give a pretty high level answer. When wildcat wells are drilled, they may have several different operators drilling independent wells. Eventually they all figure out that they are in the same sand lens. Over time, those wells will decline in production and there will be a need for secondary recovery methods such as waterflood or other scenarios. The unit will be formed and one operator will take over. All the leases from the surrounding area included in the unit will now be rolled up into the unit. In the past you would have gotten paid on the net acres/spacing acres x royalty. In the new unit, your acres will roll into the bigger area and you will receive a new tract participation factor. Now you get paid on all the production from the unit, but at the new factor. Your new decimal is the tract participation factor x royalty.
The unit documents spell out everything. My question to you is are you just a mineral owner or a working interest owner? If you are a working interest owner, then you will have to pay for your percentage of any new wells and operating expenses, but you will get more in royalty percent. If you are just a mineral owner, you will not have to pay for the wells. You just get your new percentage of the unit royalties. Read everything very carefully. You might want to speak to an oil & gas attorney before signing anything.
Thank you for this excellent explanation. I am a royalty owner with an existing lease, so therefore, we were rolled into the unit. I did, however, speak to my oil & gas attorney about it and sent her the plan. Since I have an existing lease, I was told that I would automatically be added to the unit, so no action was required on my part. Is this type of production similar to the methods used in Canada with the tar sands? In other words a bitumen?
This is a regular sandstone unit, so they are probably using a waterflood or CO2 for secondary recovery. The plan will state what they are going to do. Probably not bitumen.