Replies to This Discussion

Permalink Reply by Two Dogs, Pirate on February 3, 2009 at 12:21

Do a search on force pooling and you will find all kinds of answers.

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Permalink Reply by BirdDawg, plain ole' idiot on February 6, 2009 at 6:44

KB,
Now, what I want to ask now is, you know I don't really understand this, are you saying there are no penalties for an unleased mineral owner? Could you make your post a little clearer for me (you know I ain't real bright).
Just kiddn' ha ha

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Permalink Reply by Dion Warr, CPL on February 3, 2009 at 19:36

Graysands:

Short answer: unleased mineral interest (UMI) owners have 'safe harbor' from penalties (risk charges) in LA, as long as you are not considered to be 'in the oil and gas business' (thus, Exxonmobil must go consent or non-consent on its fee lands in an unit, and are subject to risk charges, but Joe Schmoe is not). Your proportionate share of revenue will be offset by direct well costs (as determined by invoices and a reasonable fee imposed by the operator for supervision) such that at payout, you will come back into 100% of the revenues from the well. You remain responsible for your proportionate share for any future well operations costs (workovers, recompletions, etc.) The accounting is such that the revenue for UMI is 'netted out' against existing well costs to be paid, as said costs are accrued (thus you may reach payout as UMI, begin to receive revenue for a time, then after a reworking operation, not receive any revenue until your share of the rework cost is paid by your proportionate share of production, then receive payments again, and so on). UMI owners will generally be kept informed as to their revenues and well costs by statements sent on a regular interval.

The landman who takes a lease and holds it has acquired working interest. He has 'entered the oil business' insofar as he owns working interest: he is a 'working interest owner'. WI owners receive AFEs (Authority for Expenditure) which provide estimates as to the costs of such activities to facilitate a decision as to whether to consent (and pay their share of costs) or go non-consent as to well operations, thus subjecting their interest and proportionate share of revenue is to actual costs, and risk charge as defined in the Mineral Code. The total 'penalty' allowed under current statute is 300% (well cost plus a 200% risk charge assessed to non-consenting WI owners, this just changed in the past year from a 100% risk charge). Generally, WI owners who seek to participate in the process will execute a Joint Operating Agreement, which regulates many aspects of the operator/non-operator relationship in a unit or area above and beyond just well costs for the signatories.

An aside: becoming a successful WI owner requires specific knowledge and expertise, as well as a significant financial commitment. It is not for someone looking for a hobby, unless your hobby is to lose your shirt. Investing in portions of such a deal similarly requires that you do your homework, even if it first means finding a manager, a fund, or a firm who has a solid track record in the business. The O&G business is much like a baseball season: you hit for average, realizing that in any one at-bat you could hit a home run, strike out, hit into a double play, or anything in between. Investing in one well for all the marbles is about as sensible as defining your season by a single at-bat.

Long answer: Huge discussions found in several spots on the forum. This has been discussed and debated at length. My comments are applicable to LA. State laws and procedures vary (widely).

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Permalink Reply by Dion Warr, CPL on February 5, 2009 at 18:29

Graysands:

Being a southpaw in the American is not so bad anymore. Especially since the short hangin' porch at old Tiger Stadium in Detroit was decommissioned. But you really should consider coming over to the Senior circuit. Chicks dig the long ball.

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Permalink Reply by The_Baron on February 6, 2009 at 6:31

The new Mets stadium has a porch. They tried to make their new staduim a tribute to the classics that have gone the way of the doodoo, like ebets and polo field.

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Permalink Reply by Spring Branch,mineral owner on February 7, 2009 at 11:23

Dion, are the costs involved with running a pipeline to the well considered a "direct well cost" and as such deducted from an unleased mineral owner's revenue? What other costs other than drilling and frac costs, pad cost, road cost, equipment/tanks on the pad cost , are considered direct costs of the well???

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Permalink Reply by The_Baron on February 4, 2009 at 8:22

I would take a royalty over a working interest any day. With my luck I would get into one of these wells that blows out or has other problems.

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Permalink Reply by msfva on February 6, 2009 at 10:33

KB, What do you mean by "override?" Can you explain this? Thanks.

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Permalink Reply by Dion Warr, CPL on February 7, 2009 at 8:16

Msfva:

Override: otherwise known as overriding royalty interest (ORI, ORRI) - An interest in the sale of production (much like a royalty interest) conveyed by the working interest owner. ORI is generally only good for the life of the lease. Some conveyances of ORI do have provisions which allow for the ORI to be reinstated should the WI owner ever extend or reacquire the original leasehold for a certain period of time.

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Permalink Reply by Geoman on February 6, 2009 at 7:07

How long does it take the average Haynesville well to pay out at $4.50 gas???

Just curious.

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Permalink Reply by Grillin' - MmmMmm on February 7, 2009 at 12:01

KB: I hope you are right as that would certainly help me get closer to retirement a lot sooner. But, I don't see gas prices going back up in the next 6 months. If anything, they could go down. Until the economy turns around and we start getting folks using NG, we're going to be over supplied. Again, I hope to heck that's wrong, but I just don't see it.

And with the morons in D.C. passing their goofy Pork Bill, things will get worse, not better! Is it too soon to "hope" for "change" again??? Guess I gotta wait 4 more years! How depressing!

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Permalink Reply by The_Baron on February 9, 2009 at 9:21

I agree with you Mark, gas prices will continue to be weak untill industrial demand picks back up.

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