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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 on Monday

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

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Permalink Reply by Rock Man 13 hours ago

PS comment to Skip's discussion

If you want to participate as a WI owner in the drilling of this or any well, it is best to agree to have the operator's insurance cover your share of the operation.

Trying to get your own O&G related insurance as a stand-alone non-Op working interest partner is both difficult and expensive.

Not having insurance in place could be very costly if "worst case" scenarios take place

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Permalink Reply by Rock Man 13 hours ago

You are getting this request to participate since you are not leased, and your tract / acreage is in the proposed drilling unit.

There is always the option to reach out to the operator to see if they want to do a lease on your acreage - if you do this, you move out of the WI / cash paying position and into the "proportionate revenues from the production from a successful well".

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Permalink Reply by Skip Peel - Mineral Consultant 10 hours ago

Thanks for the detail, Rock Man.  I will note that Texas and Louisiana mineral law is different in many ways.  In Louisiana unleased mineral owners are never Working Interests (WI).  They are treated as Unleased Mineral Owners (UMOs) under a separate and distinct mineral code that provides some protections and benefits if indeed the well operator abides by the law.  In many cases, they do not.  In addition to the advice provided by Rock Man, it is my opinion from some experience that owners of WI who are not familiar with the ways of the O&G industry should seek to sell those interests to an individual or company that specializes in being a non-operated WI.  WI get pencil whipped as bad or worse than UMOs and royalty interests.  It is complex and arcane stuff.

It is always a good idea when asking a question regarding mineral law and regulations to include the state where the well or mineral right is located.

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Permalink Reply by Hale Yayuh 3 hours ago

Is this in Texas or Louisiana?

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