Replies to This Discussion

Permalink Reply by BirdDawg, plain ole' idiot on February 27, 2010 at 4:37

Parker,
I think the major disadvantage to being a working interest owner would be the possibility of huge unexpected costs due to mechanical problems or problems during completion, getting stuck in hole, possibility of blow out, the list could go on and on. And what about liability? We have been told by one of the big players in the shale that they have had (well)s that cost around $20 million. I wouldn't want to pay my part of that, even for a small percentage. Just a possible scenario.

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Permalink Reply by Henry on February 27, 2010 at 7:52

Parker,
I cannot think of any advantage that would outweigh the risks. As the UMO, I have no expenses. As a WIO, I must put up cash. But the return is the same. Big companies balance the risk of the few percent of wells that mess up against the returns from the vast majority of wells that produce (at least in the Haynesville). I would never put my money into a single well.

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Permalink Reply by Aubrey C. Sanders, Jr. on April 1, 2010 at 18:06

Parker,

If you are unleased owner and a well is drilled you become WI owner by default unless you recapitulate.

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Permalink Reply by Kat Bloomfield on April 3, 2010 at 2:37

WI is not the same as UMO. UMO owns its share of production. WI does not. The only "advantage" I can see is if you become a WI, you sign an operating agreement, which typically provides contractual access to data. But, as a WI, you must pay to play or pay a 300% penalty. By contrast, as a UMO, you are insulated from liability and out of pocket cash calls. As a WI, your liability is established by contract (and law), but you pay to play. Problems for UMO are aggressive operators who will falsely claim a UMO is subject to the 300% penalty, which is wholly false. I think a case actually is pending where an operator took this ridiculously frivolous position. Also, other problem is the aggressive operator who will claim UMO is not entitled to data. While I personally dispute that position, it's a position the aggressive operator will advocate. Bottom line: aggressive operators will litigate the color of the sky, whether you're a UMO or WI. However, the "rules" re: WI are more established.

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Permalink Reply by Les Bamburg on April 3, 2010 at 15:50

Caliente, my position has always been that the "Carried Interest Owner" is entitled to all the same information and data as any other interest owner since they have helped pay for its acquisition including well logs, well test information, operating expense data, AFE's, contracts, etc.

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