CAPLA 2016
Rental Allocation:
How do you share your annual
lease rentals between Working
Interest parties?
Rental Allocation 2016
Purpose of this discussion
To engage in an overview and open discussion
about the importance of rental allocation and the
approval of invoices in today’s changing O&G world.
Rental Allocation 2016
Does rental allocation reflect current
working interest or the current DOI?
Yes / No / Not always? I’m not sure?
Rental Allocation 2016
Company Policy vs. Business practicality
How does your company charge out annual rentals?
How does your company pay annual rentals?
-Producing zone pays?
-Unitized zone pays? (even if that tract has no
prod well?)
-Split rentals & bill evenly?
-Charge as much to partners as possible?
-other methods?
Rental Allocation 2016
Is it time to re-visit your company’s current policy
regarding how to invoice and approve annual
rentals?
Rental Allocation 2016
When should you pay and when should you reject a
rental invoice?
-rental % does not = current DOI
-rental % does not = pooled/prepooled
DOI
-rental $ doesn’t match your records
-rental $ nor rental % match your records
???
Rental Allocation 2016
In the demo slides we will be using a full AB Crown
section (Section 1) and all rights (All PNG) and
Company A, B, C, D, etc
Simple rental allocation (2 companies)
WI
Rental $
Company A 50%
$448.00
Company B 50%
$448.00
Rental Allocation 2016
Two lease subs/splits:
Sub/Split 1 - PNG to Base Mannville
WI
Rental $
Company A 50%
$448.00
Company B 50%
$448.00
Sub/Split 2 – PNG below Base Mannville
Company A 25%
$0.00
Company B 75%
$0.00
Rental Allocation 2016
Two lease subs/splits:
Sub/Split 1 - PNG to Base Mannville
WI
Rental $
Company A 50%
$0.00
Company B 50%
$0.00
Sub/Split 2 – PNG below Base Mannville
Company A 25%
$224.00
Company B 75%
$672.00
Rental Allocation 2016
Two lease subs/splits:
Sub/Split 1 - PNG to Base Mannville
WI
Rental $
Company A 50%
$224.00
Company B 50%
$224.00
Sub/Split 2 – PNG below Base Mannville
Company A 25%
$56.00
Company B 75%
$168.00
Rental Allocation 2016
If your company was the payor, which way would
you set up your records?
If your company received the invoices, which one
would you pay? Would you reject any? Would you
amend your records to match that of the invoicing
company? Why? Why not?
Rental Allocation 2016
Industry is doing more deals than ever before. PNG
agreements are being split out multiple ways
including zonal and wellbore.
If you have a wellbore lease split/sub, do you charge
rental? Why? Why not?
Rental Allocation 2016
Sub/Split 1 – All PNG excl the 100/02-06
wellbore
WI
Rental $
Company A 100% ?
Sub/Split 2 – 100/02-06 wellbore (held in
trust)
Company B 50%
?
Company C 50%
?
Rental Allocation 2016
Farmin/Farmout Agreements
Where do you allocate the rental $
BPO?
APO?
Where do you allocate the rental $ for a penalty
split/sub?
BPPO?
APPO?
Rental Allocation 2016
Poolings – Cross and Non-Cross conveyed.
The terms of each agreements should be reviewed,
but in the case of a non-cross conveyed pooling,
RENT/ROYATLY/TAXES are paid by the PREPOOLED interest. A separate DOI should be set up
on the contract to reflect the POOLED AND PREPOOLED DOI’s according to the Pooling agreement.
Rental Allocation 2016
Cross Conveyed Pooling DOI set up
(1/2 section)
Pool
Company A
50%
Company B
50%
Rental $
$224.00
$224.00
Non-Cross Conveyed Pooling DOI set up
(1/2 section)
Pool
Company A
50%
Company B
50%
Pre-Pooled
$448.00
$ 0.00
Rental Allocation 2016
Multiple governing agreements and multiple parties…….
Scenario: Company A is payor of lease. Company A
sold it’s entire interest in PNG in Belly River to Company
B. Company B entered into a Farmout Agreement with
Companies C & D.
Company B will not pay rental invoice stating that
Companies C & D haven’t reached payout and they
should be invoiced directly by Company A. How do you
respond to Company B.
Rental Allocation 2016
Trust Agreements. Agreements that, as payor, your
company is not a party to. Do you care?
If your company is payor, you must have all
rights/lands set up in your land system.
If your company is not payor, set up rights/lands
that your company has an interest in.