SPUR—Cohesion to negotiate lease agreement

[TMoore]

I have royalty interest in a saltwater disposal well in Eddy County, NM.

The SPUR lease department has recently contact me regarding renegotiation of royalty compensation. The lease representative applied pressure…approaching extortion.

Fist, they misrepresented the status of the well, stating that the well is “offline”. They continued, “if you renegotiate, then SPUR would be financially motivated to repair the infrastructure, bring your well back online.” Furthermore, they stated, “if your well is offline for an extended period of time, this would force renegotiation or we have the right to plug your well.” Upon investigation, I confirmed that the well is operational, yet salt water disposal capacity has not be utilized.

Another representative recently inquired about willingness to renegotiate, stating that salt water disposal has been diverted due to less expensive alternatives, implying that the royalty rate is above average terms. Nevertheless, upon investigation, the terms of agreement is within average rates…lower range of average rates—.50 per barrel.

Any experience? Advice?

Thank you!

Todd

[KyndallLeone]

I have invested in SWDs as well and it is a frustrating world right now.

With new technology in saltwater reclamation, there is pressure on ‘older’ SWDs to stay profitable. Dependency on trucking water in, location, and operational expenses may also be playing into their pressure to keep it operational and in the green. And ‘terms’ are changing fast in the water world. You may want to connect with the Produced Water Society and New Mexico Produced Water Research Consortium to get more insight into your particular factors.

As far as coercion or extortion, those are different issues. Have you researched if your landman is registered with the AAPL? They are tied to higher ethical standards in negotiations. You could report the behavior if so. If not, you could request an AAPL registered landman from the company, but if it is a small company who doesn’t have anyone registered, you may just irritate them with no payoff.