An election on the pre- pooling letter does not keep you from having to make an election under the pooling unless you sign an operating agreement with the Co. drilling the well .
Thanks Ron,
When I post on here I follow the old Army officer rules for writing. "K.I.S.S." (Keep It Simple Stupid)
I chose to participate drilling a well in Grady County, OK in 2006. The AFE was 6 million. I had approx. 3 acres out of a 640 acre pool. I put my money up and the well was drilled and completed. It was a dry hole. The operator gave (no costs) the well to an independent who came up the hole and re-completed the well. The strata that was completed made a well which was pooled on 40 acres. Unfortunately my 3 acres was not in this 40 acre pool. After paying drilling and completion costs, I received no revenue from a well that made an "ok" return. Would I participate again? Yes, but I would know a lot more about the game before I put my money up.
What was location of this well ? Was this drilled under a pooling order or operating agreement ?
Sec 36, T4S, R8W, 2.4999ACRES, A pooling order I think.
Ron McKenzie said:
What was location of this well ? Was this drilled under a pooling order or operating agreement ?
What if you dont have the money to do any of it and it is pooled....what happens then. Do you have to participate or can you go with leasing?
If you are pooled, then you can choose one of the pooling options. You cannot elect to participate until you get a formal pooling order unless you make a separate agreement with the operator. If the well is pooled, then you will not know the operator until the pooling is decided. Along with the options, one thing decided by the pooling order is who will be the operator. If you don't have lots of money, then don't think about participating. You can lose everything. If things go poorly, you can lose more that then AFE estimate.
Listen to Stephen. It's not going to work out well for you unless you have a lot of money and have extensive experience in oil and gas operations. By the nature of the question I'm guessing the latter is not true. The biggest issue is that for these shale plays the problem isn't paying for the first well drilled, but paying for the density drilling. An operator will happily run you over and take your interest. To do that they'll propose 10-15 wells at once (see Township 2n-4w) and you have to put your money up for all of them in usually 25 days. If you don't put your money up then you go non-consent and lose your rights to that producing interval.
Our experience is that we choose to participate as Working Interest owners because our fractional ownership in many wells is so tiny that we could afford it. We spoke to Continental Oil's attorney who advised us to do it ---back when oil was $100----saying our investment would be recouped within a year and after that we'd be seeing 4X the royalties of non-working interest owners. That's how it worked out----at first! As Huey said, we were asked to participate in density drilling and i am still unsure if one can just pick one or two wells to participate in or you have to pay for a WI in all of them? Anyone know?
I chose to participate in 5 out of 6 of the Jeanna wells in grady country with CLR. I paid 25% of the balance per year for two years in a row, and asked CLR to apply all my payouts from all wells (8 including the 4 Jeannas) and apply them to the balance, which looks like it will take about 18 months.
Since now i hear that the wells are mostly drilled out after 2 years, it will be interesting to calculate the return on WI royalties vs regular ones. Definitely a WI is better----- if you can afford it, if you have a reputable driller, and if the oil price rises. It our case, because we had no acreage to reap the upfront fees, it made sense 4 years ago.
Given the recent lawsuit of property owners in OK against oil companies for damages due to earthquakes due to fracking, and other legal issues which could arise, it would be prudent to put these interests in an LLC.
Oklahoma does not allow well by well elections. If the operator proposes 10 wells at once then you elect to partipcate in all 10 or non consent all 10 unless you arrange otherwise with the operator or you’re a party to a JOA with different rules.
Each acre of a 1280 spaced well will run you about $8,000 (assuming 50% of the lateral is in each section). 640 spacing will run you $16,000. That’s the general rule of thumb for Grady where wells range from $8,000,000 to $13,000,000 nowadays.
Out of curiosity, how many mineral acres did you partipcate with Chipper?
Huey,
Thanks for this information. My grandparents who were cattle ranchers in OK bequeathed my sisters and i and our cousins mineral rights in Grady, ie. in the Newy well it was .2848 acres/each. Others like Croom and Langworthy and Arrington were even smaller. (but we are grateful for the $$$) The costs were as you mentioned, about $12k for each of us to "fully" participate, although the costs of the well drilling has increased in the past few years.
I have other questions which I'd like to ask in a private message if you accept my friend message.
Happily accepted. Thanks for sharing.