Amendments and Modifications to Recorded Gas Production Units

Generally, around the time of actual gas production gas companies will pool together multiple parcels and file a “Declaration of Pooling and Unitization” document at the courthouse to formally designate the Production Unit. The Declaration of Pooling and Unitization document includes the total size and shape of the Production Unit, and sets forth the acreage that each participating Landowner owns within the designated Production Unit. Landowners are paid royalties based in part on the size of the declared Production Unit and the number of acres the Landowner owns within the Production Unit.

As gas production and development expands, it is very common for a gas company to amend or modify a previously filed Declaration of Pooling and Unitization document. There are many reasons for gas companies to amend an modify and existing Production Unit. In many cases an amendment and modification to an existing Production Unit increases or decreases the total acres contained within the existing Production Unit. As a result of modifying the total acreage in the Production Unit, each individual Landowner’s interest in the Production Unit will increase or decrease based upon the addition of the new acreage into the Unit.

As one example, if a gas company increases the total size of the existing Production Unit by adding additional acreage, all Landowners with acreage already in the Production Unit will see their interest in the Unit decrease since the overall Unit size increased but their acreage in the Unit remained the same.

Recoupment of Royalties Previously Paid to Landowners

When a gas company adds additional acreage to an existing Production Unit the company may seek to recoup royalties paid to Landowners within the original Production Unit who now have a lessor share of the overall Unit. Gas Companies often seek to retroactively apply the amendment and modification to the original declared Production Unit and assert that the Landowners within the Production Unit have been overpaid prior to the time the existing Unit was modified. The company will notify the Landowner that the company is retroactively applying the Production Unit modification and the company will start
recouping the asserted overpaid royalties from the Landowner’s future royalty checks.

However, many Oil and Gas Leases do not allow the gas company to amend or modifiy an existing Production Unit and then seek recoupment of royalties already paid to Landowners within the original Production Unit. If a gas company is seeking to recoup royalties already paid to a Landowner, the Landowner must understand the basis for the recoupment and whether their Oil and Gas Lease authorizes the gas company to retroactively apply the amendment and modification and recoup royalties previous paid to the Landowner.

If a gas company is seeking to recoup royalties already paid, you should contact an experienced oil and gas attorney to review the grounds for recoupment of royalties to confirm whether the company is complying with the terms of your gas lease. The Clark Law Firm, PC represents Landowners on all pooling and unitization issues, including disputes involving a gas company’s ability to retroactively apply amendments and modifications to Production Units and to recoup royalty payments from Landowners.

If you feel a gas company is wrongfully recouping your prior royalty payments, or if you have any other pooling and unitization issue with a gas company, contact The Clark Law Firm, PC. Attorney Doug Clark is Pennsylvania’s Landowner Lawyer and can help you with all of your pooling, unitization and royalty issues. Contact us today!

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