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Oil/Gas/unit size and decline curve/decimal interest.

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Question
Hello,
I have a quick question regarding decimal interest and unit size.  I am in western PA and so there is a lot of activity in the Marcellus and Utica as you know.  I have seen/heard much debate on royalties and the use of decimal interest.  Unit sizes here ( and the one I am in exceed 1000 acres ), although some are smaller.  I understand the decimal interest represents a landowners ownership in the unit and that with a 640 ac unit your decimal interest will rise and thus royalties would appear to rise also.  
However, in larger units would it not be true that the decline curve would be expected to be longer and therefore your royalties would be the same regardless if you owned 100 acres in a 640 acre unit or 100 acres in a 1000 acre unit?  I can see where the 640 ac unit would initially produce higher royalties but since you are draining a smaller area it would seem that the total recoverable royalties from the 640 acre unit would be  about 64% of the 1000 acre unit.

I realize wells are all different but there is much debate on the impact of unit size on royalties.  To me it seems in the long run it will be apples to apples.

Thank you in advance for your assistance.

Answer
I would much rather own 100 acres in a 640 than 100 acres in a 1000. While it's true you'd be draining a larger area with a 1000-acre unit I don't think you'd notice it in your royalties enough to matter, as the well in the 1000 would have to produce nearly twice as much to equal the 640.

Oklahoma, and many other states, have "allowables" (a max amount the state will let them produce) for oil and gas wells. I doubt there's much difference in allowables in a 640 vs. a 1000 frankly. Better off with a smaller unit, but you might ask some of the other experts on this site to see if their opinion differs. I don't often delve into "decline curves" so my opinion is more or less a "seat-of-the-pants" one.

Hope this helps you out!
Frederick M. "Mick" Scott CMM, RPL
The Mineral Hub
www.mineralhub.com  

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Frederick M. Scott

Expertise

Oil and gas leasing, lease negotiations, how to best deal with the oil and gas companies or their representatives, buying/selling mineral rights, forced-pooling, correlative rights, deeds and conveyances, and "post-production" costs. I am most experienced with Oklahoma properties and laws, but am able to answer questions concerning other oil and gas producing states in many cases.

Experience

I am a Certified Professional Mineral Manager (CMM) certified by the National Association of Royalty Owners (NARO) in Tulsa, OK. I am also a Registered Professional Landman (RPL) with the American Association of Professional Landmen (AAPL). I have managed my family's oil and gas properties in Oklahoma for over 10 years and have dealt with many landmen, title analysts, attorneys and other oil and gas professionals in the process. I have written several articles which have appeared in various oil and gas industry magazines and newsletters. I have negotiated and drafted leases, prepared deeds, affidavits, and other legal instruments relating to my own minerals, as well as performed title, legal research, and curative work for same. I have acquired a good deal of knowledge on the subjects of oil and gas law, mineral appraisal, and landwork over the past ten years, and also worked as a professional landman and lease buyer for a time. I've seen the business from "both sides" and therefore feel confident I can help out most of the folks who ask questions in this forum.

Organizations
National Association of Royalty Owners (NARO); American Association of Professional Landmen (AAPL)

Publications
National Association of Royalty Owners "Action Report" (ROAR); NADOA Magazine, The Mineral Hub, Landman Magazine, and several royalty owner association group's newsletters.

Education/Credentials
Certified Mineral Manager (CMM), Registered Professional Landman (RPL)

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