Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2010 at 2:33

Steve, as a Working Interest (WI) the heirs would have to pay their proportionate costs for the well. Even with a small percent interest that could be a lot of money. And a WI assumes the same risk as the operator and other WI's. Not every well comes in at $8M. That's if everything goes off without a hitch. Numerous wells drilled to date have experienced problems. And cost considerably more. You may be thinking of going unleased (UMI). 90 acres in a 640 acre unit would owe $1,125,000 for the proportional cost of a $8M well.

Permalink Reply by Steve Barnhill on March 2, 2010 at 3:33

Skip, maybe I'm not using the correct terminology. I was under the impression that being unleased that we would be forced pooled and therefore have a working interest in the well. Royalties would not be paid to us until drilling expenses were met by the drilling company. If another well was drilled (for whatever reason) then we would be on the hook for proportional costs. The members of my grandmothers family are together and would like to avoid this and lease our share but no action has been taken so far by the Lafayette company that contacted us last year.

best,
Steve

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2010 at 3:42

Steve. Yes, you are confused on the terminology. There is a distinct difference between WI and UMI. And the LA. Mineral Codes treat each differently. There is a wealth of information concerning the two if you care to do a little research in the site archives. I think you are mistaken that you will not be offered a lease because no entity has done so yet. That's not rare at all. There can be many reasons but with 90 acres, your family's interest will not be overlooked. And no operator would want to drill a unit with 90 acres unleased if the could help it. Your family can lease at any time including after the well is permitted, drilled, completed and turned to sales. Do a little homework and don't get in any rush. The best lease offers are often not tendered until development of a unit is imminent.

Permalink Reply by Les Bamburg on March 2, 2010 at 4:02

Steve, you are correct that if you are unleased then you are what I call a Carried Working Interest Owner. The operator will recoup your share (~14%) of any drilling costs and operating costs from your share of the well's production. Once the well reaches payout, you should begin receiving payment based on your share of production less your share of operating expense.

The operator or another company could approach you for a lease agreement at any time - even after the well is on production.

Permalink Reply by Skip Peel - Mineral Consultant on March 2, 2010 at 4:45

There is a substantive difference between a Working Interest and an Unleased Mineral Interest. Yes, both are Force Pooled into the drilling & production unit by the unit order approved by the state. The WI must pay it's share of the development costs as the work progresses and the operator issues Authorizations For Expenditures (AFE). The WI may pay the AFE in full and retain it's full proportional share in future production or decline to pay and have their share of future production reduced proportionally. A UMI is not required to pay their proportional cost by state mineral law and their proportional share of future production can not be reduced by their failure to pay an AFE. The operator recovers the UMI's share of the costs by retaining the UMI's share of production until their proportional cost for drilling the well is recovered. Then, with small and defined deductions, the UMI receives 100% of their proportional share of production. This is as brief and condensed an explanation as I can manage. There is certainly more detail which as I said can be found in the site archive. Start with Caliente's Blog on UMI, link follows:

http://www.gohaynesvilleshale.com/profiles/blogs/umi-basics

Permalink Reply by Steve Barnhill on March 2, 2010 at 4:59

Les and Skip......ALRIGHT!! No, really, thanks a bunch for the reply's. You've pretty much confirmed what I thought was going to happen even though I'm pretty uninformed on the details. It seems to me like we're sitting in a pretty good place now. I've always thought we would be leased but as I said we have a fair amount of people to run down...so we'll just wait and see what happens.... and I'll read a lot!
Skip thanks for the link...I'm a readin' now.

best,
Steve

Permalink Reply by waltcop on March 1, 2010 at 16:50

Steve,
I goofed......section 2 is up for unitizing. See Les B follow up post on Feb. 3, 2010. Thanks Dixie S2 for correcting my error.

Permalink Reply by Dixie on March 2, 2010 at 12:26

No problem Waltcop, I had to read the posts over to to see if maybe I had made an error. And thanks to LesB and Skip for all of the valuable information they share, it sure makes all of this a bit easier to understand.

Permalink Reply by Teri Nelson on April 2, 2010 at 3:32

We join your land Nelson/Holt in sec. 2- T9 -R12

Permalink Reply by ken hatcher on May 26, 2010 at 14:06

Has any one else received notice from Onebane Law Firm that Cheasapeake is applying for (7) production units....in T-9,R12W SECT. 4-5-7 and in T-9,R13W SECT.1-2-11-12 ? PRE-APPLICATION NOTICE!

Permalink Reply by Les Bamburg on May 26, 2010 at 15:59

Ken, thanks for the heads up. Would you post operator and field information plus a list of the unit names for section?

Permalink Reply by ken hatcher on May 27, 2010 at 3:29

Les, this is all the information that I have. Hope it is enough.

Attachments:

• ken0001.jpg, 2.2 MB
• ken0002.jpg, 2.1 MB

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