Replies to This Discussion

Permalink Reply by Snake Stewart on December 19, 2008 at 12:02

Part of the original Sibley Cowboys group started received payments in the last couple of days from PHK, I believe.

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Permalink Reply by SL on December 19, 2008 at 16:12

Well, that is hopeful. Thanks for the update!

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Permalink Reply by Suzan on December 19, 2008 at 17:02

Yes we are still waiting. We were originally offered 20,000 an acre by Cheasapeake, signed the lease agreement. Then the crash, our offer was cut to 10,000 an acre or a working intrest with a 7% increase in royalties. Most in our group have chosen the cash while a couple have selected a working intrest. We are still waiting to receave checks.
Greenwood La.

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Permalink Reply by Suzan on December 22, 2008 at 7:16

I beleave the working intrest means you receave no roylty payment until your portion of the drilling expense is paid for. Meaning instead of leasing your portion of mineral rights you agree to paying for a percentage of the drilling cost.Then the 7% roylty increase is added to the 25% already agreed on once the drilling expense is paid for.

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Permalink Reply by The_Baron on December 22, 2008 at 7:57

working interest

1. n. A percentage of ownership in an oil and gas lease granting its owner the right to explore, drill and produce oil and gas from a tract of property. Working interest owners are obligated to pay a corresponding percentage of the cost of leasing, drilling, producing and operating a well or unit. After royalties are paid, the working interest also entitles its owner to share in production revenues with other working interest owners, based on the percentage of working interest owned.

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Permalink Reply by SL on December 19, 2008 at 18:30

Who did you work through?

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Permalink Reply by Caiman on December 20, 2008 at 9:28

Yes still waiting.I signed an intent to lease in mid Sep. with Cheasaprick for 20 an acre & 25%,they disapeared just evaporated.A couple of weeks ago A landperson called claiming to be with chk and offered me 200 an acre and 1/16.That was a fairly short phone call.I'm in section 24,16N,15W.I have been reading all of the avid posters for quite A while and have learned A great deal.I hope ya'll don't mind me just poping in and use'ing your screen name like ive known you for ever but it seems that way as much as I have read. I want to thank you guys lots,for your wisdom and posts ,Esp.Skip,KB,Barron ,Snake,intrepid,Earl,Spring Branch,Dion,im sure I missed some but your information is invaluable to anyone that will read it and sometimes quite entertaining.Hope ya'll don't mind me hanging in the back ground im sure even Snake can type faster than me.Thanks again and have a great Holiday

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Permalink Reply by The_Baron on December 20, 2008 at 16:22

1/16....???????

You couldn't lease someone in 1900 for that. Its a good thing it was just aphone call, if they had come to my door, I would have introduced them to my shotgun. Can't be letting someone rob you during Christmas season.

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Permalink Reply by NA on December 20, 2008 at 19:48

1/16 royalty would get that Landman coal and a bag of switches for Christmas....

Also this part is directed to Suzan....

All Mineral owners before leasing own 100% Working Interest & 100% Revenue Interest covering their minerals (assuming there are no NPRIs). WI determines what you pay in bills so unless it is a carried WI (where they pay your operating cost) the owner had better have a big sack of cash to pay for their interest in cost on the well.

Example:
Unit Size 640 Acres
You own 160 Acres

Assume they own all other leases.

You decide not to lease and you want to partner in on the well.
160/640= .25
25% WI 25% RI
Negotiate the JOA which is completely different from the OGML.
Well cost $10,000,000 to drill and complete. (Just a guess) They will send you an AFE to sign along with the request for a check for your end of cost (all done before Operations begin so this figure can go up). As a partner you will pay $2,500,000 (so get the old checkbook out) for the Drilling and Completion job for a right to %25 RI. Hope that well produces if not they will send you another letter requesting more money for your end of the cost for plugging the well. However if the well produces 10000 MCF a day for say 30 days and they get $6 an MCF then you would be looking at the well making $1,800,000 a month. You being a partner will be entitled to $450,000 ($1,800,000 x .25 RI you own). Now thats a sweet little 18% return on your money in the first month.

Sorry for the long winded reply but I don't understand why they would offer you a carried working interest. I would assume they would offer an ORRI in the unit. See the example below. (Using same Acreage amounts as the above example)

You lease:
160/640 x .25(Royalty)= 0.0625 Revenue Interest
You don't Lease they give you an ORR in the unit for the well:
ORR= 0.0625

That seems like a no brainer but I would be very careful when a company says they are giving you WI. Usually carried working interests are giving to the Land Manager of the prospect or the Geologist in smaller Exploration Companies. It's kind of a spiff. If anyone is still awake at this point feel free to flame away on anything I miss represented(Hey it's my first post). Also realize this is a very simplistic example as it never works out this easy.

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Permalink Reply by NA on December 20, 2008 at 20:45

KB,

You are correct that the Overriding Royalty Interest Owner will not recieve an Authorization for Expenditures (AFE) like a Working Interest Owner. Think of it like this:

Landowner ownes 640 acres surface and minerals.
Landman leases landowner at the following terms:
100 per acre and 1/5 royalty for Z Exploration.
Z Exploration says wow Landman you did a great job getting that done we are going to give you a 1% ORR on this lease.

Revenue on the 640 unit would work out as follows (RI = Revenue Interest):

Landowner RI=.20 [640/640 x .20(Royalty)]
Landman RI= .01(ORR 1%)
Z Exploration=.79

Landowner assuming they have a free royalty provision will only pay taxes out of their end.

Landman having an ORR would only pay taxes as well. Also assume in the assignment from Z Exploration there is a Free Royalty Clause.

Z Exploration bears all cost of the well because they own 100% of the Working Interest.

The question of the spiff....Well I don't know anything about larger companies but for smaller Exploration companies I do know that as a reward for getting the exploration company into a deal or doing exceptional work a geologist, landman, engineer may be carried on WI with a certain RI. In other words they pay that WI cost and the person will recieve a RI in the well. I guess spiff may be the wrong word there lets say a reward or you may say some sort of profit share.

Carried Working Interest= Sometimes carried interest may be to a certain point. Possible to casing or completion. However I have seen it carried forever. But realize the operator of the well is paying this. Deductions on the RI of this is probably transportation, treatement and anything else. Unless it is a really sweet deal and you get a free of all charges in which case you only pay taxes.

Overriding Royalty Interest= This owner ownes no WI so they don't pay any cost of the well. The ORRI owner should make their deal with the free royalty and all they pay is taxes.

Unleased Mineral Owner's Interest= their RI equals their tract factor. (acreage owned in unit/size of unit). I will go out on the limb and say they will recieve their RI check or Royalty check at such a time that the well begins to payout. Payout being the time that the operator makes back the money they pay in cost. This may be a month maybe more. I am not totally clear what the operator can deduct from the unleased mineral owner's check but I would assume they would deduct anything and everything they could from it including but not limited to compression, transportation, treatment and what ever else they could think of, along with taxes.

I hope this helps. If I missed anything just shoot me another message.

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Permalink Reply by Suzan on December 22, 2008 at 8:36

Thanks, very informative. Sounds like you have a lot of experiance in the industry. Fortunately for me my cousins who share acres with me are handling our deals. They are a small exploration/drilling company who can afford the working intrest due to thier success in Cotton Valley and other plays. Much of this is still a foreign language to me, but I am learning as we go. Am also getting to be pretty good with a calculator and once drilling commences am looking forward to a great early retirement!!

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Permalink Reply by Tracy on January 9, 2009 at 6:54

Still waiting on Cheasapeake?

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