Selling Working interest?? I don't believe it.
I have commented prior to now, but I wanted to ask again. my family owns property in the "CORE" area of the Haynesville-- Township 14N Range 12W. In most of the 7 sections we own property, we have waited for a well to pay for itself, then we are paid. For example, in one section they have drilled 8 wells, we have 55 acres in that section, and 4 of them have "paid-out,' so we receive a check for 8.5% of the profit per well, per month. ANyway, my question is of a different subject matter. We also participate, that is we have partnered with Chesapeake in another section, we have/had 200 acres in one section, we leased half (100) and the other (100) we paid our share of the cost of the well. we also had a "Turnkey" agreement, meaning that in the case of a cost over-run we would only be responsible for a certain amount, so that LLC is listed as a production company, A company out of Houston represented us, and finalized the terms of the agreement, the theory is/was that we are forming "PUD's" ( proven reserves) underground that a seller could continue drilling where we left off. As one member of the family, I didn't think it was a good idea because I anticipated the GARGANTUAN supplies of natural gas that the Haynesville, and other plays were producing. Our deal was for 1 well in 3 different sections, so 3 total. In conclusion, we are now being told that 3 is not enough!! I, myself, am ready to locate a seller. I agreed to "go Along" with this deal and participate, now I am growing discouraged as I had the foresight to realize a seller would NOT buy our reserves. Other members of the family, (and their are just 2), IMO are too proud to admit that I was right and they were wrong. Their "pride" and greed made them believe it would have been possible to drill And establish these so-called reserves, ANY THOUGHTS? I would be eternally grateful, Please offer suggestions/recommendations, or any questions,
Sincerely, Thomas
Views: 1973
Replies to This Discussion
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Permalink Reply by 1kw6x71km1v37 on
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That is an interesting predicament. I think the operator is trying to play you beyond the bounds of your contract. Probably because he would like to have your voluntary acreage contribution to well costs by merely buffaloing you into the deal. Let me guess...the first three wells aren't doing so hot. Have they reached payout, or is payout years away? Let the operator go down with his ship in the Haynesville. Without you and your family. Best of luck.
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Permalink Reply by Dion Warr, CPL on -
Thomas:
Never get involved in business with family. (Said the man who is involved in a family business...)
Is your production development company (or LLC) a fully formed viable commercial entity? If so, you may wish to speak to your CPA about the possibility of taking writedowns (losses) against your existing reserves to minimize the taxable income and/or capitalization. You may be able to offset this by purchasing existing streams of income (from other revenue sources) so as to maximize the amount of allowable losses to soak up losses that would otherwise be indefensible.
That's on thought that pops into my head. In general, personal expenses are subject to income floors, where many course of business expenses are offset as long as such expenditures are justifiable. If your other investments are doing well, you may wish to broaden this search with your CPA. But, I'm not one. and IANAL, either.
Best wishes.
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Permalink Reply by a on
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It definitely sounds like greed got in the way and now you have to live with the consequences.
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a,
Who are you saying got greedy, the landowners or the operator? LOL
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Permalink Reply by dominator on
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elaborate on that cheap shot, I am not as wise as you, about these things. no , the wells have done relatively well.
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Permalink Reply by dominator on
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i have spoken to some companies that claim to buy working interrest.
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I'm hinting that perhaps the operator got greedy in the Haynesville, shelling out many thousands of bucks per acre to get a position in what turned out to be a loser play that is eating it's lunch.
If you folks have done well with your properties, that doesn't jive with the OP's tale of woe.
What's up with that?
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Permalink Reply by dominator on
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Please advise, The dilemmna now is that i wish to sell this interest if possible but and as somebody mentioned above, being in business with family leads to a rocky relationship. What did you mean by saying. "if you folks have done well with your properties that doesn't jive with the operator's tale of woe?"
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Permalink Reply by dominator on
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I've explained to family that this is business, initially we had the "sweetheart" deal of a turnkey agreement, now we don't, and if it was so important then, that we had that in the lease agreement, then it should still be important to incclude that to shield ourselves aginst the possibility of a stuck pipe, or any other unforeseen expenses, some members of the family seem to think that these are our best friends, lol. ridiculous. Also, does ANYBODY out there THINK THAT CHESAPEAKE WILL REDUCE THE NUMBER OF HOLES THEY DRILL IN A SECTION`````~~~~~~~~~~~~~~~ (like exco has!!!!)
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I wrote OP, dominator, not operator. Anyway, it seems you have some good wells which are past payout and some cloudy prospects ahead with the potential to quickly turn into a tale of woe. So I was half wrong, and half right.
Regarding whether the operator will lower the number of wells within sections, he may have to drill a minimum of holes to hold the leases once the cat is out of the bag and everybody knows one well can't drain the entire unit. That is one hell of a Catch-22.
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Permalink Reply by Joe Aldridge on
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CS,
I'm trying to understand this. It looks like the Operator needs to drill additional wells to drain the formation. As a participant, dominator and the family, are contractually obligated to participate in any additional wells. At this point they must come up with their share of the drilling expenses. I guess the operator can drill them into the ground so to speak. I think dominator has reason to be concerned. And I don't have an answer. It makes it difficult when the other two want to stay in and he wants out. Has he offered to sell his share of the LLC to the family? If so what was their response? Can he sell his share to someone outside of the family? If that is a possibility then he might be able to sell it to a high income individual that can get a tax break off of the operation with long term income possibilities. That's the only option I see for him. I hope I'm interpreting this correctly.
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