What costs for drilling, completion, production, etc. can be charged to unleased mineral owners?
I have property in a unit with a well that went on-line last month and am unleased. I have sent certified letters to the operator asking for itemized cost reports and have only received statements showing tangible/intangible costs; nothing specific. Do I need a professional to audit cost reports, and if so, can someone recommend one? Thanks!
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Replies to This Discussion
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Permalink Reply by Bobi Carr ("parker") on
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Permalink Reply by Pam on
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Thanks, y'all, and Henry too, for re-posting that. And of course, Caliente for all the hard work. What valuable information! I'd read it awhile back but all that legalese and technical stuff gets me. What I'm wondering, is there anyone who could offer some sort of auditing service and would it be feasible to solicit their services?
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Permalink Reply by Henry on
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Pam,
I don't have an answer to your question. But, I think it's safe to say that the law for UMI is not as well defined as it is for working interest partners. This is because there simply haven't been as many trials/rulings involving UMI over the years relative to working interest partners. I know of some people who have hired a lawyer to monitor the reports and costs associated with their wells. I'm going to venture that we will see lawsuits popping up in the next few years regarding what is an allowable expense and what is not.
In any event, you could do all of the UMIs on GHS a big favor, if you started a UMI blog, and keep us posted on the trials, pitfalls, and lessons you encounter as you go through this. I know I would be an avid reader.
Maybe Keith could start a group for UMIs?????
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Permalink Reply by Pam on
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Hey Henry! A blog's an interesting idea -- maybe I will. I've thought that a group for UMIs would be beneficial also.
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Permalink Reply by Les Bamburg on -
Pam, my opinion is the UMI or "Carried Working Interest Owner" is charged the same type of costs (capital and operating) as the Working Interest Owner. The primary difference is the UMI does not have to pay up front but rather the operator recoups the costs from the UMI's share of revenue (production) from the well. Also the operator is obligated to market the UMI's share of gas production.
It is also my opinion that payout is determined on an individual well basis rather than a unit basis. In other words, the operator has to keep payment statements for each individual well in the unit. So the UMI would begin receiving payment from a well as soon as it "pays out" even if other wells in the unit have not reached pay out. This is debateable and I am sure others may have a different opinion.
I realize this is a very sensitive subject.
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Permalink Reply by Horseman on
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Les or Skip,
I sent a certified letter to petro-chem operating co. in shreveport because I am an umi in the McCoy well in Bienville Parish. The well has been in production since September 2006. Petro-chem sent me a list of cost that were broken down like this.
Drlg, Title, Land, etc 1,184,349.70
Intan. Compl. 831,790.14
Tang. compl. 477,574.24
Loe 9/06-5/10 276,889.21
________________
2,770,603.29
Revenues(Net after Sev.) thru 5/10 production 983,618.32
Balance of cost to Recover 1,786,984.97
This is a verticle well of 10,000 feet. Does this look about right for the deductions that are usually taken? I'm not sure what LOE is but I guess it is deducted annually. Thanks for any information you can share by looking at this.
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Permalink Reply by BirdDawg, plain ole' idiot on
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My friend, you are getting charged for telephone bills, truck notes, office expenses, overhead, administrative overhead....... Need I go on. You can not go umi and come out on that kind of well.
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Permalink Reply by Skip Peel - Mineral Consultant on
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LOE - Lease Operating Expense. The cost of the well doesn't appear to be out of the ordinary. As to the deductions? Above my pay grade. I'll leave the rest to Les B .
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Thanks Skip and BirdDawg. I don't own a large parcel in this section but Petrohawk has just sent a pre-application notice and I hope a larger well will payout sooner. It seems like a good well may pay for itself in a year. I'm kinda learning from petromax so I will know what to do when petrohawk spuds a well. It seems like they would just cap this well because they are losing money from the expenses they are incurring. I think I'm addicted to the gohaynesvilleshale site because I read everything that is posted. I have been taught so much from this site over the last 2 plus years from folks like ya'll. (Skip, Les, Shalegeo, BirdDawg, etc)
Thanks again
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Permalink Reply by keb on
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Horseman, have you not received any money yet? I can't believe it's been since '06! Sounds like going UMI isn't a good idea after all.
Les, what do you thiink?
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Keb, I haven't received any money and really don't expect to see any since this is not a real good well. I'm like you, I'm not sure that going umi will be the best way to go even in the haynesville shale. Time will tell. I'm going to play with this small acreage and see how being a umi will pay because I own several larger tracts than this that I may want to lease instead of being umi.
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