Can anyone here tell me how legit all this is? I have an un-leased interest in Reeves Co. in which I receive royalty checks. It is with a big operator. I waited 2 1/2 years until our interest covered the cost of the wells, then I started receiving checks. Yet now they are withholding payments as I am getting billed against my royalties for everything under the sun all the way down to catering!
Is this normal? Any insight on such would be appreciated.
Thanks!
I would scratch my head if catering (for wells completed 2 1/2 years ago) would be covered under COPAS or the JOA unless they were drilling… I might need to add catering to our paperwork next time! But to answer your general question, yes this is normal to be charged expenses. The life of a leased mineral owner is easier than the life of working interest partner who is responsible for the costs and expenses of high multi-million dollar straws in ground and the facilities and pipelines that they are connected to. There will always be ongoing costs to keep wells producing and they are JIB’d to the partners and unleased mineral owners in the well. It sounds like they are “netting” you which means they are deducting JIBs from your gross revenue. The good news for you is that your proportionate interest in the well is not subject to a lease and the well paid out. Some wells do not pay out even in the Delaware Basin.
Thnx MTV, There are over 100 line item deductions & yes they include on-site meals, catering services, employee awards, emp. family travel etc… but the big one is Advalorem Property Tax. If you could answer, am I privy to see further documentation of all these deductions? Is there a governing body in Texas w/ any oversight? How do we know we are not being billed erroneously and gregariously? And if I may, are “partners” and “unleased” owners the same? We were asked at one point about becoming “partners” but I did not want to be responsible for unknown at the time bills I would be responsible for. It seems now I am anyway?
JedC
It’s normal to have some meals brought in during drilling ops, I guess if that employee was responsible for brining in the well under AFE I’d be alright with an award! Some of that does not sound like it would be covered under COPAS. I’d request an itemized list and copy of the JOA, JDA, &/or COPAS. Those are typically the docs you will need. The TX RRC does not have oversight over private drilling contracts. Partners are responsible for the cost of the wells as they are being drilled as well as the liability when things go wrong or if it is a dry hole. Unleased mineral partner is not responsible for dry holes. Unknowns happen in drilling, so probably a good call on your part.
Michael, I have a similar issue (an unleased interest in Dawson County, Texas). I have asked the operator for a copy of the agreement but maybe I did not use the correct terminology.
What should I ask for? And I suppose the request should be sent via certified mail?
Ad valorem taxes for Working Interest (non-royalty owners) is charged to operator who pays and then allocates among WI based on their proportionate interest. Royalty owners are billed directly for property taxes. You can see the 2022 and proposed 2023 ad valorem tax values for WI for the well on the Reeves CAD website under the operator’s name. In most counties the website for the County Tax Assessor will show the 2022 ad valorem taxes paid by the operator for each well. Reeves Tax Assessor has a new website and it does not show this information. Presumably the 2023 taxes due will be uploaded in October or November.
I would ask for the status on payout, COPAS, JOA & JDA. If there are not other working interest owners then the operator will not have Joint Operating Agreement/ Joint Development Agreement. Our drilling prospects always have partners so we always have those agreements in place. I’d direct those requests to land or accounting department depending on the size of the operator. I would try phone and email first, then certified mail if you cannot get anywhere. I have not had to deal with an unleased mineral owner but I seem to recall they have to turn over payout details per statute. I’d expect long delays if they are a busy operator. It is difficult to stay on top of everything or concern going on when projects are being developed.
Never hurts to ask them for an offer to buy your interest! At the very least I would contact them and ask what your options are. Working interest is a challenge for a small owner since you have no control over expenses. You can ask for backup to the billings but doubt you will get it. It’s a lot of work on their end for a small interest. That is why we choose to lease instead of being force pooled and then backing in after payout. Sorry this isn’t turning out so well for you!
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Your working interest expenses are all tax deductible. That’s what you wanted isn’t it?
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