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Oil/Gas/Discrepancies on Division Order

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QUESTION: Hi Marsha,

Thanks for all of the valuable info you provide in your Q&A forum.

I am a heir to part of the Frank/Almer Washington Estate in Claiborne Parish, Louisiana. We have 720 acres throughout sections 28,29,32,33,34/22N/05W + Sections 3,4 21N/05W in Antioch/Lisbon fields. 54 acres in Sections 28 & 33/22N/05W.

I have been following your formula to figure out our RI based on the acres in each section. Some of the wells are pooled. You stated we have to call our operator to find out from them how they arrived at our RI percentage.

Well, I tried that and was advised they don't have the resources to do a land/division title opinion for me. Can you answer a few questions for me?

What is required on the division order by law from the operator? Am I asking the right question? Are they required to list the acreage behind each description? Is there a rule of thumb on the spacing between each well?

Also, I found 2 pooled wells 62750/197407 that are not on our division order,  1 well 222793 on the pay stub but not on the division order and incomplete legal descriptions. Ex: HAY RA SUE SW/4 of Sec 28/T22N/05W or Prop. name: Lisbon Smackover Antioch Field, LI SMK A RC SU Sections 3,4,10 and 11/T21N/05W & on the pay stub it has A Stewart as Property Name.

We own:W/2 SW/4,SE/4 NE/4, NW/4 SE/4 Sec 28/T22N/05W RI 0.00640970 (HA RA SUE) 1/8
We own:NE/4 NW/4 & SW/4 NW/4 Sec 3/22N/05W + SE/4 NE/4 & NE/4 SE/4 Sec 4/21N/05W ON DO: 0.00044391 1/8 RI (LI SMK A RC SU)

It just dawned on me that Almer was my grandma's dad with 54 acres & Frank was her grandad with 720 acres. Should we have two separate division orders since the leases are different?

The division order was signed back in January 2008.

Sorry to write a book, but I'm trying to make sense of it all.

Thanks in advance,

Wendy

ANSWER: Wow--lots of questions. I'll try to answer each of them in order.

What is required on the division order by law from the operator? At a minimum the D/O must be dated (date when issued) and the effective date (date that production began that will be or is covered by the D/O). It must also state the name of the well covered. It can cover more than one well, but does not have to--each well can have a separate D/O if the operator wants to do it that way. It must also have a legal description for the well proration unit including the total number of acres assigned to the well, meaning the amount of acreage allowed by terms of the lease and by law from which the well is considered producing so that the Louisiana agency can allow the highest volume of production from the well each month (called "maximum allowable").  Usually there are small tracts around the bottom hole (or horizontal lateral) location so they must be pooled to form the size of the maximum pool allowed.  The D/O must also contain the name and address of the owner to whom payments will be made under the D/O.  It must also contain the decimal interest that this owner will be paid under the Order.  All other information in the division order is discretionary by the operator.

Are they required to list the acreage behind each description? Yes, in a way. They must state the number of acres, the names of each township/range/section comprising the well spacing acreage, but then they can describe the Declaration of Pooled Unit filed of record in the Parish oil and gas or deed records and give the Volume and Page or Instrument number where it is filed in those records. For you to see all of the tracts (list of acreage) behind the description, you need to get a copy of that Declaration from the Parish Clerk.  Call the Parish Clerk and find out how you can get a copy of the Declaration, and let them explain that part.  In Louisiana, sometimes this document is called "Voluntary Pooling Agreement" or something along that line, so make sure the clerk understands what you are asking about.

Is there a rule of thumb on the spacing between each well?  Yes, it is by regulation set out by the Louisiana Minerals Conservation Commission, the state regulatory agency. The rule is complicated, but rest assured that the agency oversees that issue very closely.

Louisiana does not require an owner to sign a lease before they can be paid royalties. Like I said before, a D/O can cover only one well, or several wells, but is not required to cover all wells in the single document.  So you can call the operator and tell them you need for them to send you a copy of the signed division order for the wells you're being paid without having a copy, or to send you a set to sign and return if their records show one was never signed. You don't have to do this, but you can if you want to, to get the well information.

What lands you own can be greater than the amount of those lands actually producing from a well or wells right now.  This is the sticky wicket for all land owners, to know exactly what part of their lands are producing or held by production and what lands are available for leasing. You can also have non-producing depths available for leasing, even though there is one or more wells producing from beneath the surface description of the land.

I hope I have answered all of your questions. If not, please send a follow up question for anything I've missed.

---------- FOLLOW-UP ----------

QUESTION: Follow-up Questions: Since our Division Order is very vague on some of the wells ex: (HAY RA SUE SW/4 of Sec 28/T22N/05W) this is all it states. I have emailed the operator numerous times regarding wells we are not being paid on and the discrepancies on the D/O with no response. What is the proper way to handle this? Also, you mentioned "maximum allowable" they were able to transport 25,000 barrels of oil on the new horizontal well for one month. All of the other wells are at 200. Allowable info on well# 247273 Sec 33/22N/05W is not noted in SONRIS yet. Doesn't this seem extreme?  Thanks for answering all of my questions. I appreciate your help.

Answer
I'm glad to give you a little more clarification to help you.

Claiborne Parish is in north Louisiana, right up against the Arkansas border. When north Louisiana (above the 33 degree parallel) was surveyed by government surveyors, the lands were all divided into Townships in a perfect square measured 6 miles by 6 miles, or 36 square miles. Then each Township was subdivided into 36 square Sections of 1 mile by 1 mile each. A regular Section contains 640 acres. A Section can be further divided by quartering it into four quarter-sections of 160 acres each, and named ("called") going clockwise: Northeast Quarter (NE/4 or NE4 or just NE); Southeast Quarter (SE/4 or SE4 or just SE); Southwest Quarter (SW/4 or SW4 or just SW); and Northwest Quarter (NW/4 or NW4 or just NW). A Township is located either North or South of the survey Base Line it is assigned to, so that's how you get the "T22N" in your well's name--it is Township number 22 North of the Base Line. Then, the Township is either East or West of the named Parallel line it is assigned to, and that assignment is called a "Range". The HAY well is located 5 township squares to the West of the Parallel. Although it should read "T22N/R05W" it is okay for the "T" and "R" to be left out of that second call because it is understood to be the Township call first, then the Range call.

Wells in Louisiana incorporate their producing depth, location and unit size and location into their name. So the HAY well is completed (drilled down to and producing from) Reservoir A (named that by the Louisiana Minerals Conservation Commission) Sand Unit "E" (SU E) also named by the LMCC. The HAY well only contains 160 acres, being the SW/4 of Section 28.

Now take a look at the well names of the wells you are not being paid on and believe you should be.  Are you certain that you own a mineral rights interest or royalty rights interest in the specific sub-section dedicated to each of those wells?

As for your question about the oil transported, the oil company can produce any amount of oil, small or large, up to the maximum amount per month permitted. So 25,000 barrels of oil transported in one month averages out to approximately 800 bbls of oil every day, and we call that a "barn burner". A well producing only 200 bbls of oil per month would be considered minimally economical, grossing approximately $18,000 to $20,000 per month depending on the quality of the crude. Also, is there any gas being produced along with the oil in those 200-bbl-per-month wells? This increases well revenues. To answer your question: no, it is not extreme because a barn-burner can be located just hundreds of feet away from a dog well--it all depends on the shale formation updips, fault lines, and other factors in relation to where the perforated wellbore is located.

You really should pursue getting a copy of the well plat for each of the wells you believe you should be being paid, so you can locate your land inside the proration unit boundaries of each. They should be available on SONRIS as an imaged document. If you feel absolutely confident that you own royalty rights in wells you are not being paid, you will have to hire an independent landman to run title at the Parish deed records to acquire copies of the documents proving that you own royalty rights in lands in wells you are not being paid. The oil company is only going to pay attention to documentation, not merely assertions that you know you own what you own. Someone else is claiming to own the same interest, and a title search is the only way to find out who that is. Oil companies have strict policies against giving out title information to royalty owners.

I hope I have answered your questions.

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Marsha Breazeale, M.Ed., CDOA, CPLTA

Expertise

All questions regarding division orders; ownership decimal calculations; title ownership and payer record changes (testate/intestate inheritance; deed; assignment; court order); oil and gas lease analysis for record-keeping and purposes of payment by operator or payer; pooling, horizontal wells, horizontal well allocation units; unclaimed property reporting; royalty owner relations questions. All questions concerning administration of surface land contracts and payment questions, such as for Surface Right-of-Way, Sub-Surface Right-of-Way, Easement, Surface Use Agreement. All questions regarding industry-standard and company-specific policies that affect land owners.

Experience

Sr. Staff Division Order Analyst. Certified Division Order Analyst (CDOA, National Association of Division Order Analysts) and Certified Lease Analyst (CPLTA, National Association of Professional Lease and Title Analysts) with 35 years of experience as a combination division order analyst and lease analyst in exploration and production in the oil and gas industry.

Organizations
National Assoc. of Division Order Analysts (NADOA), National Association of Division Order Analysts (NALTA), American Association of Professional Landmen (AAPL), American Society of Trainers and Developers (ASTD)

Publications
"How an Oil & Gas Exploration & Production Company Operates" and "Principles of Oil & Gas Lease Analysis: Standard Clauses", Oil Patch Press; Articles in NADOA Magazine; LandFocus EDU Professional Training Manuals

Education/Credentials
B.A.in Management from Our Lady of the Lake University in San Antonio; M.Ed. in Instructional Design from WGU Texas.

Past/Present Clients
Past 15 years: GeoSouthern Energy Corporation; Contango Oil Co./Crimson Exploration & Operating Inc.; Apache Corporation; BP America; Marathon Oil; Newfield Exploration

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