AFE new well Proposal

Recently we received an AFE to consent or not consent for the drilling of a new well.

Can someone explain to me what an AFE for a new well must contain when it is received, or point me in the direction of where I can find out that information? Are the answers listed in the JOA?

We were not provided configuration of the proposed unit, no detail backing up the line items listed in the AFE, no reservoir engineering or geology to backup the economic value. (I’m not sure what we are required to ask for, and what is required to be provided.)

Any guidance is appreciated.

You must have some Working Interest in the Lease. Request a JOA, Engineering and Geological information as to what makes the well feasible, as well as the redacted Division Order for your interest. Depending on the operator you may receive all or none, but they must give you the JOA they plan to use. They will typically give you a time frame maybe 30 days to make a decision or figure your interest as nonconsent, so time is of the essence. AFEs need to have the Intangible Cost - Dry Hole Cost and Tangible Cost - Completed Producer Cost. Depending on the operator these can be vague and are typically way off on the low side. Ask for everything, try to keep as much in writing as possible and hopefully they will work with you. If you have the money to loose, then it would be good to contact a Reservoir Engineer that knows the area and see if they would recommend it. If you decide you don’t want to participate or not as much as your share would equal, you can ask them what they would offer. Then seek someone in the business to look around for more offers for you and help you negotiate the best deal. Term assignments are good, keep some ORRI for sure, or participate if you know what your doing and have the money to loose. If you have a 30 day clock you should do it all at once: see how high you can get them, look for other offers, and seek a recommendation if you want to participate.

Thank you for the response,

I still have the question of is there somewhere where you can find standard requirements for what is/has to be given to a working interest owner when a new well is being drilled when an AFE is presented? We have several WI in numerous states, so i’m familiar with the process and a standard AFE. I was just curious if the AFE’s are suppose to contain specific information and details and where those guidelines can be found…

I’ve been in the business for 30 yrs., many as an Operator. To my knowledge there is no “standard” for contents of an AFE. Certainly there could be something specific that someone added to your JOA, (likely in the accounting schedule), but as to industry standards, I am aware of none.

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Unless you are under a JOA which specifies otherwise, there is no standard requirement anywhere that I am aware of that specifies what an AFE package must contain.

Certainly, there is no requirement to include any economic justification or proprietary engineering and geological interpretations. Each participant must make their own determination to participate based on their own interpretation and their own risk tolerance. As an Operator, I would never provide any such information in an AFE package for fear that a minority WI Owner might sue me if the well didn’t turn out as good as projected.

If you are not under a JOA, then the AFE notice must conform to whatever minimum requirements are set forth in your State’s pooling rules. Typically, those requirements are pretty light: Well Location, Well Cost, your percentage of the well, and a deadline for responding. A non-response will be deemed a non-consent election.

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