Replies to This Discussion

Permalink Reply by dominator on March 26, 2014 at 5:38

thanks Joe Aldridge, you are interpreting it exactly correct! and that's one possibility as you mentioned. I have offered and will offer again to sell my share to another family member. If they remain 'stubborn,' then I will travel outside the family and search for an interested party. Pride will not allow them to admit the gravity of the mistake they made, meanwhile, I am growing intolerant of their "stonewalling" me.

Permalink Reply by 1kw6x71km1v37 on March 26, 2014 at 7:25

Joe,

One would have to see the contract to determine the extent of obligation to participate in the first three proposed wells. And is this "contract" for three wells a Joint Operating Agreement that might include provisions for dropping out? If dominator's family can back out of the deal, they are unleased.

Normally, drilling participant can get out  from under the deal in Louisiana by abandoning  his leaseholds.  I favor that a court  would have to rule the same holds true for fee owners. As these fee owners are unleased at the present  time, they may be able to simply withdraw from the JOA or the contract. Or they might have to form an LLC and transfer their ownerships, or convey their mineral rights to another party. Possibly they could do this among themselves so nothing is lost. Not sure how that would go in court, as they all wind up holding undivided interests equal to what they had before the transfer, but at least it would be a different undivided interest in the same acreage.

Now, that's twisted, on the border of what they call legal fiction. But sometimes courts go there.

Regardless, I don't see any contractual  obligation to participate in new wells proposed by the operator. Sure the operator would like them to sign up to  be had.

To sum up, the appears to be nothing  that would compel  these folks to participate beyond the first three wells, and they may be able to get out  from under those.

Permalink Reply by Joe Aldridge on March 26, 2014 at 10:05

Yes, it would be necessary to see the JOA to see their real exposure. If its open ended the operator can spend them into the cellar and beyond.

Its also my understanding they formed a LLC to do the JV through. So they have no lease and may be obligated to participate. Also, you get into the problem with the other two family members that don't want to get out of the deal.

I had an old friend and mentor that was a small independent producer that told me to never get into a JV that would put me in this position. I listened and now I'm understanding why.

Permalink Reply by dominator on March 26, 2014 at 5:31

what does OP  stand for?

 

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Permalink Reply by 1kw6x71km1v37 on March 26, 2014 at 6:58

Sorry, I should have included earlier that the initials OP stand for Original Post, Original Poster, Opening Post, etc.

Permalink Reply by 1kw6x71km1v37 on March 26, 2014 at 13:07

Joe,

Whatever the case may be, dominator and his kin appear to be limited to participate in three wells with spending caps, so their exposure limited. After that, it's up to each individual as to whether or not he participates further in additional wells. But the operator is blowing smoke in that direction, no doubt.

Further reflection inclines me think they could drop out of the JOA by merely transferring their mineral  rights to a separate entity or to each other. I recommend they seek legal advice on this, but this is surely the quickest and cleanest way out of their mess.

Then, of course, they are unleased, and that opens up whole 'nother can of worms. They'll have the same problem the operator has. Is the well ever going to pay out?

Permalink Reply by dominator on March 27, 2014 at 9:40

thanks Cheap Shot and Joe--- I am already using some of yall's comments to defend my position, and they are SO much appreciated! Yeah, basically where I am at now is that the group in Houston that represented us and struck the deal with Chesapeake is tellin us now that we needed to drill more wells for them to be able to move it!!! I call BS,  Personally,they have lost credibility with me and originally all we thought we would need to frill is 3 total, (one for each section we have working interest in,) I have found out thru one family member that one "out" we have is an ORRI, that same family member tells me there is a penalty clause wheren if you do not "pay your way" then you cant "ride the hole" until the well has paid back those that did pay  3-5 times their investment. otherwise the penalty clause in our JOA. anyway, the other 2 we are paticipating in are going to be fracked in a couple of weeks, But to fast-forward, I'm sure at that time that this group in Houston will provide more excuses. your thoughts!?

 

Permalink Reply by dominator on March 27, 2014 at 9:46

Cheap Shot, how can you tell they are "b lowing smoke in our direction?" One thing is for sure, we weren't told until right before that they were drilling these subsequent wells, and their was some turnover inside Chesapeake, and one family member thought that would have made a difference if we stilll "knew" somebody behind the scenes, ridiculous, as I said! their primary concern is not our well-being, that being Chesapeake, or the group in Houston!.

Permalink Reply by Joe Aldridge on March 27, 2014 at 10:00

CS and Dom,

This was my worst fear. They are in an open JOA with a penalty clause. That is not good.

Dom,

You really need to talk to an Oil and Gas Attorney and see what your options are. 

CS, 

You may have a point. Since they own the property did they lease it to their LLC or to the operator? That could be their ace in the hole. If its unleased, as you suspect, then they would be an UMI with that property. But an attorney would have to look at it and see where they really stand.

Permalink Reply by dominator on March 27, 2014 at 10:08

I was reading abhove Cheap shot where you mentioned their is nothing compelling us to believe that these additional wells are going to make all the difference, but that is what we are being told, and I am forecasting more "trash talk" from the group in Houston after these wells are completed, I think the other 2 family members are stuck in denial, you?

Permalink Reply by dominator on March 27, 2014 at 11:00

we leased to ourselves and then assigned 50% to CHP, the good news is that in my area , "the core" all wells pay for themselves. we are in 14n 12w 

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Permalink Reply by Skip Peel - Mineral Consultant on March 27, 2014 at 11:12

Good township.  You should be able to find a buyer for your WI.

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