Years ago when I worked for Southland Royalty Company, we were honest and did everything first class. We did not like operators such as Funk Oil, who had shiftless investment schemes and also tried to change more for their unique mud process.
After Burlington Northern acquired the company, XTO was formed by Southland management, Jon Brumley and Bob Simpson. At some point, Brumley moved on leaving Simpson CEO.
I inherited some mineral interests in ND. I took and paid for a working interest. Since that time, XTO's joint interest billing has been high, making the well unprofitable. It seems to me that they are loading on overhead. I wrote the company that the well should be plugged if it is not making money. XTO wrote back saying that I had signed the JOA.
Does anyone have any advice for me to get out of this well profitably or be able to stick it to XTO? Thanks for your help!
David,
XTO has a point. It can't afford to take on partners that only want to take risk when the sun is shining. I also doubt if the JOA allows XTO to arbitrarily raise the overhead rates. They are usually contractual. You may, however, take a look at the revenue distribution formulae and confirm that you are entitled to benefit from oil price hedging they did on your behalf. In hind sight it may have been wiser to go non-consent in ND as the regulations are more transparent.
If your well is a horizontal well in the Bakken or Three Forks, you should either hold on until more development takes place and the value of your position goes up and re-evaluate. If the well is a vertical Red River or similar structural play, you may want to convert your WI to a lease and RI going forward.
Know that you are not alone in ND. Blame it on the Saudi's for now and vote against continuation of the political influence on the oil business in November. XOM will remain strong and continue to produce. Be happy you don't have an operator in receivership.
Gary L Hutchinson
Minerals Managment
Hi Gary,
Thanks for your reply. When we had wells at Southland that lost money, we plugged them. Their well has always paid far less than a similar well very close operated by Murex. I need to look up the production numbers someday.
Thanks again, Gary.
David
I think Gary makes a good point about fair weather investors and yet another good point about going non-consent. If there is the single well in the spacing, XTO needs to keep that well producing to retain that acreage for future use, something that would not concern you.
If the well is really costing you too much, you can probably deed your interest in that wellbore to the operator, I would certainly look into it if that would be attractive to you.
As for having signed the JOA, I can see where it could be attractive. It allows you to sit back and let the operator do the work and present you with a single bill. The thing is, you probably don't know for certain if that bill is accurate? If you didn't sign the JOA, you would have needed to supply your own insurance and write checks for every single thing the operator billed you for. Yes it's a pain writing several checks each month but then again, you know what it is supposed to be going for?
If there are other non-operating interests in the spacing, you could band together, sharing the cost and audit the operator. If there are other non-op interests, I'm sure they are no more happy than you are. Operators are notoriously bad about keeping records, I would refuse to pay for anything for which there is not an invoice.
It's never a good situation to be a guinea pig with a first well. I don't know anything about your well, whether there was an offset well that preceded yours but I have half a dozen wells in a half dozen different spacings that were drilled with 10 frack stages with "beach" sand in a really good area in McKenzie county and no more development in the 7-9 years since on my minerals, although there are about 10 permits in one of the spacings currently. It can be bad to be the first.
Some wells will cost more to operate and some are amazingly cheap to operate. It sounds to me like XTO is as I have heard people say before "Operating you to death". There are more ways to make money in oil and gas than simply producing.