Unleased mineral owner - question about "WELL COSTS"
An owner of an unleased mineral interest in a compulsory unit recently notified an operator (by Certified Mail) that the operator had failed to furnish a detailed statement of well costs to a well that was close to payout. The operator responded with the sworn detailed itemization of well costs. This list of well costs included deductions for all the royalty it had paid the other owners (over $9,000,000.00) in the unit plus a considerable sum for title opinions (over $200,000.00).
I'm not an attorney, but was under the impression that neither royalty nor title opinions are the types of costs the Commissioner of Conservation would allow an operator to deduct as drilling costs.
Can the operator deduct royalty (that is already paid to leased owners) and the cost of title opinions in calculating well costs (that can be recuperated by the operator) before the operator starts paying the unleased mineral owner?
I'm not an attorney, but was under the impression that neither royalty nor title opinions are the types of costs the Commissioner of Conservation would allow an operator to deduct as drilling costs.
Can the operator deduct royalty (that is already paid to leased owners) and the cost of title opinions in calculating well costs (that can be recuperated by the operator) before the operator starts paying the unleased mineral owner?
Views: 403
Replies to This Discussion
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Permalink Reply by Harold5011 on
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I take it that severance taxes for the whole unit should not be deducted from the gross revenue from the whole unit in calculating payout.
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KB - After further syntactical analysis, I see the distinction. Kept thinking, in error, that the operator would argue at the hearing that the payment of severance taxes "on production" is a part of the operating costs "of the unit well" in figuring payout date.
Its now midnight, I'm only on page 5 of 224 pages of the sworn detailed list, and have right at $11,800,000 in red flags.
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Permalink Reply by Bacon on -
Great info on this thread but I'm wondering why wouldn't you spend a few thousand on an attorney with that much much at stake?
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Permalink Reply by danny meyers on
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what if you only own a small lot do you still want to spend thousands needlessly
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A question as to whether or not drilling costs incurred prior to unitization were deductible to the UMI interest elicited the following response:
" . . . thus, the operator's dilatoriness in unitizing the section likely will not impact its ability to recover the allowable pre-unitization expenses out of ultimate production, assuming, of course, that the operator wasn't engaged in any kind of chicanery and timely complies with the myriad notice requisites.".
No notice of any kind was ever sent by the operator to the UMI owners. The UMI owners were not on any of the Interested Party lists for the unitization hearing (so they were not even aware of the creation of the unit) nor was the UMI owners sent an election to participate. There was not any communication (none) at all by the operator to the UMI owners as to anything. The UMI owners only found out about the existence of the unit and the producing well recently and then it was accidently. Again, the UMI owners did not receive any type of notice whatsoever, until just recently.
My question is, by not sending to the UMI owner any type of notice whatsoever, did the operator forfit its right to deduct pre-unitization well costs?
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