I received an AFE and have not responded. It is past the 1 month timeline. Can I still participate or would I have needed to inform the driller? I am thinking about participating in a few acres. This is in ND.
I am new to all of this. What is an AFE? Jack Tucker jackfran@wowway.com I own Mineral Rights in Sheridan CT. MT.
An AFE is the itemized estimate of the cost of drilling the well and I usually group it with the proposal to participate because they come together. If you are leased you will not receive one because you can't participate. Usually the AFE is the last resort of an operator, they don't want you to participate and receive 100% less cost of production for your oil. If everyone participated, wells would never be drilled because the operator would only make pocket change and you don't get big expense accounts and operate your company jet on pocket change. The operator wants 80% to 88% net revenue interest, after paying the royalty/mineral owner. If you participated you could earn more per barrel of oil because you would not have to pay anyone a royalty, so if the operator makes $60 per barrel, you could make $80 for each of your barrels. I hope this helps.
Kevin, you could still participate if they let you, fat chance of that but you could ask.
I have had operators have to send me a second AFE because of several reasons, the well proposal significantly changed or because they decided to go after a different formation. Usually the 30 days from the time you were served with the AFE is it though.
You could still be non-consent of course and they would still have to send you more offers to participate in any future wells.
I think I will wait for the next well then. Thanks for the info.
Non-consent in a first well and participationg in a second well after the first proves the acreage is not a bad strategy. Of course the acreage could already be proven by offset wells.
Then too if the operator is just wanting to drill a low producing well, drilled to a price point, to hold the spacing by production, you would not receive significant money from leasing, and non-consent would keep your options open.
If the operator is going to speculate for the next 20 years with your acres, there is no reason you can't do the same by going non-consent.
When the well pays out and you are the owner of a working interest in proven and producing acres with all title work done because you have been getting paid, [value added] you can expect to get the same amount in an assignment as an oil company would, The usual assignment is cash and a 23% override.
You would have to wait for the well to be drilled, so you could get the well logs, might have to wait for the well to pay off and possibly wait for more offset wells to be drilled so your acres were a known quantity to set actual price but you could wind up with the equivalent of 30% royalty for all the wells ever to be drilled with 40 years production in 10 to 15 years time. I'm in it for the long haul.
I guess an AFE would be of interest only to an owner who has a lease offered to him. The last lease I had offered 1/6 royalty. What options do you have in signing a lease? Jackfran@wowway.com
Dear Mr. Tucker,
Really shake them up by returning the AFE with a letter saying that you cannot consent to an AFE without an accompanying AAPL Model Form Operating Agreement with the COPAS form attached. You might ask if they would sign off on an AFE with no Operating Agreement.
With an Operating Agreement in place, you would be in a position to propose wells. audit records and many other benefits.
Buddy Cotten
Mr. Tucker, the AFE will be the last resort of the operator, they really don't want you to participate The law on being non-consent and force pooled differs between Mt. and ND, with Mt. having 100% risk penalty and a 12.5% statutory royalty. Still a deal I would take in some situations. You have to take it on a case by case basis.
Jack Tucker said:
I guess an AFE would be of interest only to an owner who has a lease offered to him. The last lease I had offered 1/6 royalty. What options do you have in signing a lease? Jackfran@wowway.com