Regarding, in an oil and gas lease, the paragraph granting lessee the right to unitize:
Pat’s lease: In respect to production from the unit, Lessee shall pay Lessor, in lieu of other royalties thereon, only such proportion of the royalties stipulated herein as the amount of his acreage placed in the unit, or his royalty interest therein on an acreage basis bears to the total acreage in the unit.
Bob’s lease: In respect to production from the unit, Lessee shall pay Lessor, in lieu of other royalties thereon, only such proportion of the royalties stipulated herein as the amount of Lessors’ surface acres covered by this lease placed in the unit bears to the total surface acres in the unit.
If both Pat and Bob negotiate a 1/4 royalty, does this mean, for land in the unit, Pat’s royalty would be 1/4 while Bob’s royalty would revert to “standard” 1/8?
That are paragraphs I have never seen. I wouldn’t sign either one without more information-especially the second one.
On the first, it needs a specific royalty to be stated if this is a lease. The number of net “mineral” acres (not mentioned either) is one of factors in the equation. Most leases state the gross acreage of the tract. But the decimal amount is calculated from the net. The equation for OK decimal amounts is: net mineral acres/actual spacing acres x royalty x % of perforations in your section. The minimum royalty in OK is 1/8th.
On the second, your surface acres have nothing to do with the calculation, only mineral acres. Again, you have to have the exact royalty stated in a lease. This paragraph is worse than the first.
Are you talking about a waterflood unit? The amount of mineral acres is also a deciding factor in the equation for the decimal amount in a WF unit but the unit acres are usually much larger than those for a lease. . Your royalty is usually stated in the original lease. Waterfloods are a whole different beast. A bit confused on what you are asking because you have mixed “lease” and “unit” in the same question.
Thank you for your replies. They are oil and gas leases and the wording is in a paragraph dealing with Lessee’s right to unitize the leased land. I tried to upload but was told that it needed approval. i’ll try again.
Lease #1.
Lessee is hereby granted the right at any time and from time to time to unitize the leased premises or any portion or portions thereof, for the production primarily of oil or primarily of gas with or without distillate. However, no unit for the production primarily of oil shall embrace more than 40 acres, or for the production primarily of gas with or without distillate more than 640 acres; provided that if any governmental regulation shall prescribe a spacing pattern for the development of the field or allocate a producing allowable based on acreage per well, then any such unit may embrace as much additional acreage as may be so prescribed or as may be used in such allocation of allowable. Lessee is also granted the right to amend, modify or cancel said unitization agreement as may be necessary in Lessee’s judgment to include or exclude different royalty owners or lands or such other information as is deemed necessary be Lessee. Operations upon and production from the unit shall be treated as if such operations were upon or such production were from the leased premises whether or not the well or wells are located thereon. The entire acreage within a unit shall be treated for all purposes as if it were covered by and included in this lease except that the royalty on production from the unit shall be as below provided, and except that in calculating the amount of any shut in gas royalties, only the part of the acreage originally leased and then actually embraced by a unit shall be counted. With respect to production from the unit, Lessee shall pay Lessor, in lieu of other royalties thereon, only such proportion of the royalties stipulated herein as the amount of Lessors’ surface acres covered by this lease placed in the unit bears to the total surface acres in the unit.
Lease #2.
Lessee is hereby granted the right at any time and from time to time to unitize the leased premises or any portion or portions thereof, for the production primarily of oil or primarily of gas with or without distillate. However, no unit for the production primarily of oil shall embrace more than 40 acres, or for the production primarily of gas with or without distillate more than 640 acres; provided that if any governmental regulation shall prescribe a spacing pattern for the development of the field or allocate a producing allowable based on acreage per well, then any such unit may embrace as much additional acreage as may be so prescribed or as may be used in such allocation of allowable. Lessee shall file written unit designations in the county in which the leased premises are located. Operations upon and production from the unit shall be treated as if such operations were upon or such production were from the leased premises whether or not the well or wells are located thereon. The entire acreage within a unit shall be treated for all purposes as if it were covered by and included in this lease except that the royalty on production from the unit shall be as below provided, and except that in calculating the amount of any shut in gas royalties, only the part of the acreage originally leased and then actually embraced by a unit shall be counted. In respect to production from the unit, Lessee shall pay Lessor, in lieu of other royalties thereon, only such proportion of the royalties stipulated herein as the amount of his acreage placed in the unit, or his royalty interest therein on an acreage basis bears to the total acreage in the unit.
These two lease clauses in your last post refer to the ability to create a pooled unit. They are different than what you described higher up in the thread.
Your Bob’s lease above had the words “surface acres”. Surface acres may or may not be attached to the mineral acres. The mineral acres are what is leased. Surface acres are not part of the calculation for royalties, only minerals. If Bob only has surface acres and no mineral acres, then he does not get any royalties. If he does have mineral acres, then a reading of the whole lease would be needed for a complete answer. In general, If he negotiated for 1/4th and the well is productive, then he would get a 1/4th royalty and his equation is net acres/actual spacing acres x royalty x % perforations within the spacing.
For your second set of paragraphs, they are common paragraphs for force pooling. If the lessor has mineral acres and had negotiated for 1/4 royalties, then they get 1/4th royalties. The decimal amount will be again be calculated by how many net acres are owned, the actual spacing of the unit, the royalties and the % of perforations.
Example 1: 10 net acres, 640 acres actual spacing (not all sections are actually 640 acres) 1/4th royalty, 100% of perforations in the spacing unit. (One section horizontal well). 10/640 x .25 x 1.00=0.00390625.
Example 2: 10 net acres 640 acres actual spacing (not all sections are actually 640 acres) 1/4th royalty, 50% of perforations in the spacing unit. (multi section horizontal well) 10/640 x .25 x .50=.00195312.
Thank you for replying. I apologize for my poor communication and for being so thick brained. I own only minerals, I own no surface acres. I believe I’m misinterpreting the “Lease # 1” meaning as I am perhaps overly concerned about being taken advantage of. The last sentence of each paragraph was what my question is related to: If there is a difference between “surface acres” as in Lease # 1 and “his royalty interest therein on an acreage basis” wording in Lease # 2? Sounds like both sentences in the two leases same the same thing with just a different choice of wording. Thank you again very much for your insight and expert information.
These are very common pooling paragraphs that are in most every lease I have gotten for Oklahoma. The basic premise is that you only get paid on the net mineral acres as they are in proportion to the actual spacing acres. “Surface” acres are not relevant. The royalty is part of the equation as explained above. Depending upon where my acreage is, the only part of that clause that I change might be changing 640 acres to 320 acres, but I do not do it often.
The clause I really work on is anything having to do with post production charges. That will impact you the most.