When allocations wells are drilled and completed, are new Division Orders required since the original units presumably already have signed division orders?

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DJC,

Yes, operators issue division orders following the completion of a new well or if there are changes to the ownership of an existing well. It is important to verify the accuracy of the decimal interest on the division order before signing.

Patrick Flueckiger
Texas Land and Mineral Law

Make sure that you understand that decimal point.  Our extended family with back and forth with an Oil company.  Their legal department had our original interest wrong and our decimal wrong.  That one point on decimal is very very important.  It took us 5 months to get the correct amount on paper and we told the Oil company DO NOT SEND A CHECK WITH THE WRONG AMOUNT ON IT.   No telling how long that would take... Just a warning.

S.H.

I guess where I'm a bit lost is that if the allocation well (unit) is formed with two existing producing units then the division orders would have already been issued when the original units were first established. It appears the "new" allocation wells (unit) become a percentage per unit of the wells acreage based on treated/producible footage of the well bore therefore the percentage as calculated is used per unit to determine value per existing units division order.

I don't know the answer but have been wanting to know... exactly how they calculate for an allocation unit. I assume that they use percentage of perforated lateral in each unit rather than a percentage of each unit's surface acreage to the total of both units... but I don't know for sure. I would like to know if anything is filed in the courthouse, with the RRC, or if any explanation is sent to mineral owners to explain how their new division order interest is calculated. Allocation units are going to become more commonplace what with most operators favoring longer laterals, and also, just trying to maximize infill drilling of each unit. If anyone knows the answers, fire away!

I will try to explain this as best I can:

This was from XTO:

You will need the "As Drilled Survey" plat for each well - this plat will show the the feet/numbers that you will use. This plat will be filed with the RRC as well.

The Lease Tract's allocated share = The portion of productive lateral on the lease tract divided by the total productive lateral length

Royalty Owner's share of well production = The current royalty ownership in the lease tract x the lease tract's allocated share.

So there would be no new division orders as the percentage of the allocation wells treated bore is allocated to preexisting units which should already have signed division orders. This is what I thought but wasn't real sure about it. I do believe the allocation wells P-16 shows the allocated acreage per unit which can be converted to the percentage allocated per unit.

Here is my experience with an EOG allocation well.  The P-12 (attached) indicated the 260.57 acre Mad J Unit was comprised of existing EOG units (Sweet and Lord D. units).  188.09 acres is from the Sweet Unit, and 72.48 acres from the Lord D. Unit.  I received new Division orders for the Mad J. Unit.  72.18% (.7218) of the newly formed Mad J. Unit was from the Sweet Unit. 

Mad J. Unit decimal interest = Sweet Unit decimal interest X .7218

Note:

  1. Individual wells in the Mad J unit had different percentages in each of the existing units.
  2. The original P-12 (before drilling) had 200.75 acres from the Sweet Unit, and 72.48 acres from the Lord D Unit..
  3. A few months later (unrelated) I received a revised division order for the Sweet Unit because my acreage was slightly reduced.  This had nothing to do with the new Mad J Unit.  I include this tidbit as EOG might have been taking a second look at the existing leases and acreage included.

I hope this helps. Let me know if you have any questions.

Bill

Attachments:

thanks for the insight, I've been watching the Mad J since 2014, when EOG permitted 6 wells on it over the course of a year.  thats six wells on a 267 acre unit (44.5 acres per well), that's some amazing density, why did EOG pack it out so quickly ?  and will they ever drill any new ones on the unit, possibly stacked or re stimulated ?

Great info. How long was the time between start of production of the allocation wells to receipt of the new division orders? My understanding is that each individual well in an allocation unit will have individual division orders. Is this what you experienced in the Mad J Unit allocation wells?

DJC,

The wells in the Mad J Unit started producing in early October 2015.  I received the Mad J. Unit division order in early December 2015, and started to get Mad J royalties in January 2016.  The first month covered the October and November production.  I only received 1 division order (Mad J Unit) for all 6 wells.  - Bill

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