My sibblings and I inherited minerals from my father. We have received royalty payments over the past of couple years from two different company's. We now have a new Operator and they are drilling 6 new wells. We have received 6 new Horizontal Well Agreements and they are asking us to sign and return the agreements. We never received any paperwork like this from the other two companies; we only received division orders when it was time for them to send out payments. Has anyone ever seen these and are they ok to sign? Any information is greatly appreciated!
Thank you,
Allison
It would help if you gave the state and legal description. Do not sign an agreement to participate unless you have unlimited capital!
My apology I am new to mineral rights. The tital on the paperwork states "Horizontal Well Agreement". This is in the state of Texas, Madison County to be exact. There are only 4 paragraphs on this contract, I could scan the top page and attach if it would help.
After further reading of the contract and online, I understand these contracts to be outlining how we will be paid if any of the allocation wells produce. Exact verbage is
"Production from the Horizontal Well shall be allocated to each of the Tracts (including Tracts, if any, that are covered by pooled units) proportionately based upon the portion of the Horizontal Well open for production and located beneth each such Tract. The allocated share of production for each Tract shall be a fraction, the demoninator of which is the entire length of the Horizontal Well from the first perforation to the last perforation, and the numerator of which will be the portion of the "as drilled" Horizontal Well beneth that Tract and located between the first and last perforations. Once allocated to each Tract, proceeds of production shall be paid in accordance with the respective leases, applicable to each individual Tract. The allocation of the production each Tract shall be determined based upon the final "as drilled" survey of the Horizontal Well."
My understanding from reading other websites is the operator doesn't need our consent to drill, so why are they even sending these agreements for how they will pay us if the percentage is already predetermined by them?
Dear Ms. Coffey,
These agreements are more commonly know as Production Sharing Agreements for the drilling of allocation wells, where the wellbore will traverse multiple units (or unpooled leases) and the lease forms make no provision for such a cross unit drill.
The other websites were either mis-read or completely wrong. PSA's are a relatively new option in the oil patch to maximize production by drilling basically infill wells. Since they generally do not change anything except how production is shared in a new well, if the production is rated on a per tract basis, I recommend to my clients that they execute the agreement and return same.
Not all owners need to agree to this proposed operation. The RRC will grant a permit if the operator represents on a PSA-12 form that 65% of the owners agree to the operation. I understand, that with some disclaimers, the RRC will grant a PSA-12 permit if no owners agree to ratify the PSA. I do not know how that works, but to me it appears that the RRC is taking the attitude that they can force pool by proxy. There are bound to be lawsuits.
Best
Buddy Cotten