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Permalink Reply by Skip Peel - Mineral Consultant on Saturday

Authorization for Expenditure (AFE) is basically a demand and opportunity for Working Interests to pay their proportional share of well costs based on a proposed budget.  A Working Interest (WI) is an interest in a oil, gas and mineral lease, not an ownership in the underlying mineral rights.  A WI can be from a lessee (the party that took the lease from the mineral owner-lessor) or from an interest in the lease acquired by a party other than the lessee.  Lessees often sold an interest in a lease they held to recoup cost and/or reduce risk. The well operator is offering the Working Interest the option to consent (pay their proportional share of cost) or non-consent (decline to pay).  A WI in consent is obligated to pay the initial budget amount, their share of the actual costs to drill and complete the well and the continuing costs to operate the well - Lease Operating Cost (LOE).  The WI in consent would get their proportional interest in the well production.  Some WIs market their share of production and some let the well operator market their share.  There is no guarantee as to the financial success of the well and the WI shares in the same risks as the operator including the cost to plug and abandon the well when it ceases production.  TGNR operates wells in Louisiana and Texas. 

The following is only applicable to my knowledge of Louisiana mineral law.  A non-consent WI is under a risk penalty of 300% for a unit well and 200% for an alternate unit well.  The unit well is the first well drilled in an approve production unit and it must recover three times its cost to drill and complete before a non-consent WI would receive any production payment.  That is if the well ever recovers 300%, many do not.  After a unit well or alternate unit well recovers the cost of the risk penalty, the WI would receive their proportional share of production less the LOE costs. 

This is a bare bones, landman's opinion of a WI.  Anyone who is not experienced in the workings of the O&G industry would need to engage the services of an qualified O&G attorney to fully understand their options and risks.  IANAL!

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Permalink Reply by Ellen Eakin on Saturday

Thanks, Skip...

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Permalink Reply by Skip Peel - Mineral Consultant yesterday

You're welcome, Ellen.  Lease Operating Expense (LOE), not Lease Operating Cost.  Sheesh.  :-)

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