I have posted a few times recently about this topic and have received some great help (hat tip to NOP_LLC! - Thank you!). There are still areas where I am confused - primarily around determining royalty percentages and how wells not operated by the same operator as our wells report volumes/revenues.
For example, we appear to be in a 1280 acre spacing unit. We have royalty interests to a number of wells in the spacing unit (all operated by one operator). There are other wells in the same spacing unit that are also operated by the same operator as our wells. But, there are also other wells that are operated by another operator. If the point of a spacing unit is to share royalties between the various mineral interest owners no matter where the well is located within the spacing unit, how do the different operators coordinate production between each other and pricing/revenue from the different units? If this happens, who audits/monitors the results to make sure they are reasonably accurate and fairly distributed (the State? Wells are in McKenzie County, ND).
As for royalty percentages, I am still not sure how this works despite some posts on the forum here (and thanks for the posts). Is it based upon gross acres / total spacing unit acres time royalty interest from a lease? So, for example, a 1,280 acre spacing unit and our lease covers 320 acres with a 20% royalty from the 320 acres? How is our percentage calculated from that? What are all of the variables needed to be able to calculate our interest percentage?
The goal here is to be able to verity the percentages, production, and royalties that we hope are due to us. Given the complexity of all of this process, it would not be surprising if there were errors made somewhere along the line. Without hiring a professional, is there a way for the “novice” to verify these things?
You have some great questions. Most of the checks and balances regarding production is done between the operator and the purchaser. The gas gatherer for example typically owns the meter and checks it for accuracy periodically. The operator is notified when the meter will be checked and should have a representative meet the representative for the gas gathering company to verify the accuracy of the meter. Operators should also audit the pay statements from the gas gatherer to insure they are paying properly per the gas gathering contract. The same is true for oil haulers. Lease operators or pumpers are responsible for gauging tanks to account for production and shrinkage (evaporation and spillage). The pumper typically calls in to the oil hauler to inform them they have a load of oil to pick up. After the oil hauler picks up the oil he should leave a run ticket informing the pumper how much he loaded onto his truck, the quality of the oil, and the percent of BS&W (we always called it bullshit and Water but I am pretty sure that is not the technical term).
Assuming you own 100% of the 320 acres that the lease covers your decimal interest can be calculated as follows:
(320 Net Mineral Acres / 1280 acre Drilling & Spacing Unit) * 0.2 royalty interest = 0.05 decimal interest
The other variable you are likely not accounting for is the possible deduction associated with your lease. Some leases allow the operator to charge the royalty owners for things like marketing and compression.
Also be aware that a lease will usually list the gross acres of a parcel and not the net acres that a mineral owner actually owns. You have to follow the title documents to determine the net acres. You can usually ask the Division Order Analyst for the operator how many net acres they are using for their computations. If you are very nice, you can often ask for a copy of the paragraph of their title opinion that pertains to your assigned acres and match it to your family records. Occasionally, there are errors, so then a title search must be conducted.