Is anyone aware of a large unitized (pooled) unit made up of smaller sub-units and when a well is drilled, no matter in which sub-unit, the royalty participants in all sub-units participate in the royalty allocation?
Yes. That’s basically what an allocation unit is.
So, in that situation, no matter where the well is drilled within the larger unitization, all of the royalty owners throughout the entire unitization would participate pro-rata?
A pooled unit is comprised of multiple tracts and royalties for any well within the unit is paid to all proportionately as defined in the DPU. Do you mean that a horizontal wellbore crosses your Unit A and also crosses other units? In that case, the proportion of production and royalties allocated to Unit A will still be shared by all the mineral owners within Unit A. Check the depths within the Unit A to be sure that the horizontal wellbore is within the unitized depths. If the unit is limited to depths from surface to 5,500 feet, then it will not apply to a well drilled at 10,000 feet.
I was just wondering what is customary. A unit a family member is in seemed to have that kind of structure but a year into the arrangement the operator petitioned and was apparently granted the ability to change the structure to where the wells had to be in their sub-unit for members of that sub-unit to participate in the royalty allocation. And, they no longer participated in the royalties of wells drilled in other parts of the larger unitization. Seems a little sketch.
Your reference to sub-units is not common nomenclature, so your question cannot be readily answered. There are units where the DOI is calculated on the higher tract basis, rather than on a unit basis, but the volumes and revenues are adjusted lower so that the total royalties end up the same. If you post the unit (eg name, county, RRC lease number(s) and operator), then someone familiar with that situation can respond.
Sure. Jersey State, block 55, sections 29 and 32 in Reeves County. 1 of 7 sub-units of the larger Cortes Bank State Unitization.
Here is my take on the situation. Jetta Permian had 7 units with State leases where it had drilled a well. Each unit was about 2 sections. JP wanted to hold on to various state leases and not have them expire as to lower depths. GLO agreed to a 9454.86 acre unit which required set numbers of wells per year to be drilled over about a decade. Once drilling ceased, then any undrilled depths or acreage within the unit would expire and the DOI would be recalculated for remaining acreage and wells. All existing wells at the time of the creation of the unit continued to be paid on its sub-unit basis. JP sold out to EOG. EOG decided that it would be easier to keep drilling, but to pay all old and new wells on the sub-unit basis. Then at any time drilling ceased, everyone would continue to be paid at same DOI on the sub-units, rather than have to go through an amended DOI process for the whole thing so your DOI would change. Also, if EOG does not like one tract, it could drill elsewhere. Or EOG could sell out in parts to another operator. So they all agreed to amend back to original sub-units for royalty purposes, but at the same time any wells drilled on one sub-unit keep the leases in force as to undrilled depths or acreage in another sub-unit until the end of the drilling commitment. These massive units are messy and are really beneficial to the operator who does not have to pay new bonus for new leases.
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Thank you. I’ve run the numbers comparing the revenue to the state in the original Jetta DOI allocation for state and royalty holders versus the allocation EOG got the state agree to. The state loses millions of dollars and the royalty holders hundreds of thousands.
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