Have received an AFE for bringing a well back to production. I would normally never participate, but the costs are low enough that I am considering it. I have a very small partner percent and my cost is coming in at about $50.
Two main concerns:
First, the AFE is an estimate. So realistically, how much do actual costs vary from the estimate? What would keep a company from sending out a very low AFE to get people to participate and then once they have agreed, spend alot more money than the estimate? What options would I have if the costs just kept increasing?
Second, does participating open me to legal liability? If an employee is injured or there is equipment/environmental damage, are participating owners more liable?
The Company is spending way more money than you are. Why would they deliberately underestimate the cost just to suck you in? Do they really need your money that badly? Trust me, for $50 they would greatly prefer not to have to deal with you.
Read your JOA, there will be provisions that address overspending an AFE. As far as liability is concerned, you can usually require that the Company include you in their insurance coverage (again read your JOA).
Prepare yourself for lots of paperwork that you won’t understand & to be frustrated by not being able to
get in touch with anyone when you have questions about procedures, billings, gas marketing agreements,
etc. Not trying to scare you. Just letting you know that going through all of these headaches for $50.00 might not be worth it.