Special Situations

The Proportionate Production Interest (currently used only in Oklahoma) changes the gas marketing interest of the Working Interest Owners in a well so that the Royalty Owners will receive production based on the total gas sold from the well. It was created so that no Royalty Owner would be deprived of immediate gratification of revenue from its royalty in the well no matter which Working Interest Owner sold an interest. The PPI adjusts the Working Interest Owner's share of gas production so that it might pay, or cause to be paid, all the Royalty Owners in the well, regardless of whose interest the royalty burdens. No interest owner's Net Revenue Interest is affected by the PPI calculations.

Any well in Build Division of Interest - LDO110, with a 'P' for Oklahoma Proportionate Interest calculation coded into field 2, will allow the user to generate an Oklahoma Statement of PPI - LDO282. It will also use the PPI to build Split Stream Working Interest Groups when Build Contractual WI Groups - LDO400, is run. The data entry in the Royalty Interest Groups and Working Interest Groups is identical to any other well. Because the 'P' option is used, all the Royalty Category types are listed in each Working Interest Owner's Split Stream Working Interest Groups in proportion to each Working Interest Owner's PPI.

Calculation of the Proportionate Production Interest

Your Land Division Order System will:

• Determine the total Royalty burden for each Working Interest Owner based on the information keyed into the RIGs and WIGs. Royalty equals all the interest reserved by the mineral interest owner, regardless of what it is called in the lease. Excess Royalty received by the mineral interest owner under forced pooling is still royalty. Federal Royalty, including any Indian Royalty, will not be used in the calculation if a Special Royalty Code is used with an Override Category Type, or with a Royalty Interest Category Type with an MMS Lessor Type Flag definition of "FD" (Federal), "IA" (Indian) or "IT" (Indian Tribal).

• Determine the Total Net Working Interest (for lack of a better term) by subtracting the Total Royalty Type from the Working Interest (1.000000).

• Determine the Net Working Interest for each working interest owner by subtracting its Total Royalty Category Type from its Total Gross Working Interest.

• Determine the Proportionate Production Interest for each working interest owner by dividing its Net Working Interest by the Total Net Working Interest.

• Determine the Net Revenue Interest of each working interest owner by multiplying its PPI by the Total Net Working Interest and subtracting its share of any Subsequently Created Interest (Overrides and Federal Royalties) burdening its interest. The Net Revenue determined this way equals the Net Revenue calculated using the 'W Working Interest Owner' option at field 2.
  
  

PPI Scenario

True Ownership by Working Interest Owner Group:

Owner  Int. Type GWI  PPI  NRI

100  WI  .300000  .291044  .234375

ADAM  RI      .056250

MMS  ORI      .009375

        .300000

200  WI  .300000  .313433  .253125

Betty  RI      .037500

CLO  ORI      .009375

        .300000

300  WI  .200000  .194030  .162500

Carl  RI      .037500

        .200000

Facts About the Scenario

This is an Oklahoma well, subject to Proportionate Production Interest (PPI) calculation.

1. 100 and 400 are selling under 100's contract. The total marketing percentage for this contract = 49.2537% (59.0908% for 100 and 40.9092% for 400).

2. 300 and 200 are marketing their gas independently. The "Take in Kind" marketing percentage = 50.7453%.

3. NWI = 1 - Total Unit Royalty; NRI = Total Unit Revenue Interest.

The following deals with the calculation of various interest types according to SB168:

400  WI  .200000  .201493  .165625

David  RI      .012500

Matt  RI      .018750

Tom  ORI      .003125

        .200000

Royalty Interest in a Well (RIW)

Royalty Decimal

RIWs in IFS Excalibur are recognized as those owners whose Type Interest Category is "RI" (but not flagged with an MMS Lessor Type of "FD", "IA", or "IT").

The royalty interest breakdown for IFS Excalibur is stored in records in the LDO_TRACT_DETAIL file, attribute 37, RI.REVENUE.INTEREST.

Royalty Share (RS)

Sum of all Royalty Interests in a Well example:

Royalty Owner   RIW

Adam   0.0562500

Betty   0.0375000

Carl   0.0375000

David   0.0125000

Matt   0.0187500

   0.1625000

Proportionate Royalty Share (PRS)

Royalty Owner  RIW / Royalty Share  = Proportionate Royalty Share

Adam  0.056250000 / 0.162500000  = 0.346153800

Betty  0.037500000 / 0.162500000 = 0.230769200

Carl  0.037500000 / 0.162500000 = 0.230769200

David  0.012500000 / 0.162500000 = 0.076923000

Matt  0.018750000 / 0.162500000 = 0.115384800

Proportionate Royalty Share   = 1.000000000

Subsequently Created Interest (SCI)

SCIs include Overriding Royalty Interest (ORI), Production Payment (PP) and Add Value from Oil & Gas Lease (CLO).

Basically, SCIs are excluded from the PPI calculation. SCIs in IFS Excalibur are those owners whose Type Interest Category is "OR", or whose Type Interest Category is "RI" with an MMS Lessor Type Flag definition of "FD," "IA," or "IT."

These values are also stored on records in the LDO_TRACT_DETAIL file, attribute 37, RI.REVENUE.INTEREST.

MMS  0.009375000

CLO  0.009375000

TOM  0.003125000

  0.021875000 

Proportionate Production Interest (PPI)

• Gas Entitlement Decimal

• Used for Marketing & Gas Balancing

• Adjustment for Shift in Royalty Burdens

(Net Revenue Interest + Any Subsequently Created Interests) / 1 - Royalty Share)

For example:

Net Revenue Interest (NRI) + Any Subsequently Created Interests (SCI) = Net Working Interest (NWI)

(1- Royalty Share) = (1 - sum of all royalty interests (RI) = Total Unit Royalty (TUR)

PPI calcs:

 (NRI) (SCI) (NWI) (1-TUR) (PPI)

.23437500 + .00937500 = .24375000 / .83750000 = .29104478

.25312500 + .00937500 = .26250000 / .83750000 = .31343284

.16250000 + .00000000 = .16250000 / .83750000 = .19402985

.16562500 + .00312500 = .16875000 / .83750000 = .20149253

The creation of marketing Split Stream Working Interest Groups using LDO400 correctly states a working interest owner's NRI based on the PPI calculation for Oklahoma properties.

Proportionate Production Interest by WI Owner Group:

Owner  Int. Type GWI  PPI  NRI

100   WI  .300000  .291044  .234375

Adam  RI      .016371

Betty  RI      .010914

Carl  RI      .010914

David  RI      .003638

Matt  RI      .005457

MMS  ORI      .009375

        .291044

200  WI  .300000  .313433  .253125

Adam  RI      .017630

Betty  RI      .011754

Carl  RI      .011754

David  RI      .003918

Matt  RI      .005877

CLO  ORI      .009375

        .313433

300  WI  .200000  .194030  .162500

Adam  RI      .010915

Betty  RI      .007276

Carl  RI      .007276

David  RI      .002425

Matt  RI      .003638

        .194030

400  WI  .200000  .201493  .165625

Adam  RI      .011334

Betty  RI      .007556

Carl  RI      .007556

David  RI      .002519

Matt  RI      .003778

Tom  ORI      .003125

        .201493