I inherited an overriding royalty interest in some oil producing land in Coffey County Kansas. The ORI is high but production has been low, apparently due to the age of the wells and equipment. I get a little income from this now and then, but not much. Our lease operator has given us a bit of an ultimatum in the form of three choices:
1) Accept their buyout offer
2) Agree to a lower interest rate in return for new drilling to increase our net profit
3) Cap the wells
Lowering our rate to increase our income is counter-intuitive, but I understand the concept. I hope and assume that we have more options. I need to find an unbiased person who is knowledgeable in this type of relationship to help me evaluate our options and understand the implications. I don’t know that I need a lawyer so much as a person with the appropriate experience and the time to speak with me on the phone or in person. Of course, I would be willing to pay a reasonable fee for some insight in this matter.
you didn't mention a lot like the decimal of the override you have now and does it cover the entire section or how many acres are there covered by the override? What amount are they offering for buyout and what are they wanting the reduced decimal at. You'll be better if you accept buyout or reduced decimal, #3 you get nothing ever.
And does the ORRI cover the well bore or the lease?
Wouldn't it be the lease hence the demands?
I would be telling the operator that I think selling would be a great idea, that after I found a couple of interested buyers with deep pockets who wanted to buy I would get back with him, and no he does not get first right of refusal, unless he has that in a previous agreement.
In your place I would consider that they might just want me out of the picture before doing some remedial action like a refrack. The could also want to obtain your part cheap prior to selling out themselves for added profit.
There are so many possibilities. I think you are on the right track. You need to at least find out how much they are losing on the wells because you don't cap them until you have made the last dollar off them, if they are still making that dollar, you find someone to buy them because plugging them becomes someone elses problem and expense. Be very sceptical and always follow the money.
I know you don't want to reveal too much, but how about you tell how much you stand to lose from lost royalty or not selling out, which sounds strange to me for wells they are threatening to cap? Why would they want your interest? You are here because you smell fish, and I agree you need to check it out.
Sounds like a good way to lose perhaps a lot of money by smarting off to them and saying "I would be telling the operator that I think selling would be a great idea, that after I found a couple of interested buyers with deep pockets who wanted to buy I would get back with him, and no he does not get first right of refusal" Smart off to them, which is what you would be doing if you said that, and you maybe making nothing and lose out. Not all people are crooks and they may not be liars, they may just be wanting to make a fair deal and drill another well but not one that cost them too much.
Joe, there is not a thing wrong with finding someone else who would like to buy your interest in an operation. The offer itself doesn't ring true to me.
The OP said it was a little bit of an ULTIMATUM. I will die on my feet rather than live on my knees, thank you.
I did not say anybody is a crook or was attempting to do anything illegal. I like the way you say they "may not be liars".
If I find someone who will pay as much or more than someone I suspect trying to pull a pressure play on me, darned right they don't get right of first refusal, why shouldn't I just take the other offer if it is equal or more? If I can get an equal or better offer you had better be willing to top it if you want that interest, and I see nothing wrong with that. I call that being honest.
The wonderful operator has no reason to offer more if they can't easily see what they want going beyond their reach, or becoming twice as expensive to obtain because it might end up in the hands of someone who is knowledgeable.
Who is to say that a new well will ever be drilled? Maybe they just want the OP to voluntarily give up some of his interest. The OP did not mention a drilling commitment.
Speaking of buying out and capping in quick succession sounds like a bargaining tactic to me.
I say there is possibly just as much to be lost by not bargaining hard as there is possibly to be gained by knuckling under.
I note Joe that you give no direct advice yourself, you merely criticize my post, as usual. Like when I tell someone they have TF formation and you ask me where I get that and it happens they already have a TF well, and you ask me what other formations and I tell you they are only 2 miles from 1 million barrels of Red River abd Duperow production, and when I ask you if you have any comment, the silence is deafening. Do go on Joe.
Have a great day!
The offer doesn't sound fishy at all, they laid it all on the table and gave options not an ultimatum as you mistakenly think. They'd like to drill another well but obviously feel they could not do it paying the overrides at current levels. If he does what you say you'd do and smart off to them according to what they say they will not drill a new well, it sounds like the operating cost on the well is losing money, operating cost is more than they make so they will plug it and if they are true to their word you basically told this guy to tell them go ahead and plug it and give up perhaps a lot of money with a new well or selling to them and make money. You are suggesting is that this company is trying to muscle him into submission and steal from him, that they can not be trusted, that they are not being honest with him. I didn't suggest you were saying they were doing anything illegal, however it was obvious that you did suggest they were probably crooks and not being honest with him.
Smarting off to anyone especially a company that is in control of your future royalties is not something wise to do. Certainly there is a chance this company is lying and they'd drill a well if he refused #1 or #2. I thought one of your comments was not something a person should do and gave Bill the reason why I thought that and what could happen.
My advice is to negotiate with the company to get a new well drilled, short of bluffing them and taking the chance of losing it all it is the wisest thing to do from my perspective, but I can see not everyone agrees.
Bill, sounds like you at in a bit of a dilemma. If you would like to friend me and contact me I will be glad to help guide you gratis.
Dirk
I am in a similar situation in Parker County, in that I have a working interest and a farmout proposal fron Devon. I am trying to learn everything I can about the geology of the wells and minerals. I don’t think you have to tell your operator that you are shopping their offer unless you get a real deal put together. Then perhaps they will come up, or sell their interest to a new operator. Good luck! Get educated.
Bill give these guys a call they should be able to help you out. Based in Wichita and know Kansas well. http://www.wildcatresourcesinc.com
Joe, where is the drilling commitment? The deal is nothing without that? I fully realise that you didn't stop by to offer advice but to criticize my post, because that is all you did.
We have had this type of discussion before when you objected to my words "demand for payment" when you present a check at a bank you are making a demand for payment" sorry if that bothers your new age sensibilities. Sometimes we can't all get along, sometimes our interests do not mesh and there is a zero sum game where for one to get more, another has to get less.
If the op bargains to reduce their interest and there is no drilling commitment, hopefully with liquidated damages if they do not drill, it's close to giving up something for nothing if not that very thing.
Mineral Joe said:
The offer doesn't sound fishy at all, they laid it all on the table and gave options not an ultimatum as you mistakenly think. They'd like to drill another well but obviously feel they could not do it paying the overrides at current levels. If he does what you say you'd do and smart off to them according to what they say they will not drill a new well, it sounds like the operating cost on the well is losing money, operating cost is more than they make so they will plug it and if they are true to their word you basically told this guy to tell them go ahead and plug it and give up perhaps a lot of money with a new well or selling to them and make money. You are suggesting is that this company is trying to muscle him into submission and steal from him, that they can not be trusted, that they are not being honest with him. I didn't suggest you were saying they were doing anything illegal, however it was obvious that you did suggest they were probably crooks and not being honest with him.
Smarting off to anyone especially a company that is in control of your future royalties is not something wise to do. Certainly there is a chance this company is lying and they'd drill a well if he refused #1 or #2. I thought one of your comments was not something a person should do and gave Bill the reason why I thought that and what could happen.
My advice is to negotiate with the company to get a new well drilled, short of bluffing them and taking the chance of losing it all it is the wisest thing to do from my perspective, but I can see not everyone agrees.
Whatever, from my somewhat classical education I learned to discount flattery by 9/10ths, self flattery by 99% so I don't flatter myself often because I don't find it rewarding. I do think the drilling commitment would be the heart of the matter and I will take my 1% self flattery for mentioning it, so I guess you are 1% right that I flatter myself. I can live with that.
#2 with drilling commitment or how about existing wellbore override remains the same but agree to override at a reduced percentage on all new wells.
Sounds sensible, too bad that sounds nothing like the offer that Bill related to us.
Mineral Joe said:
#2 with drilling commitment or how about existing wellbore override remains the same but agree to override at a reduced percentage on all new wells.
yeah but he also didn't elaborate on reduced interest, it is open for negotiation and if they honestly only want a new well and reduction in his interest only in any new wells then I see no reason they wouldn't agree but how much reduction are the wanting. The bad things is that it is not minerals and when the present well is plugged he owns and has nothing, he has reason to want to negotiate a deal.
assuming they are telling the truth about capping the wells. We don't even know if the wells are even operating at a loss yet. If the operator is looking at capping and losing the lease anyway, I think they would try to sell before capping, give it away before going to the expense of capping, certainly not capping if there is something there worth the cost of producing. I do not expect the operator to cut their own throats. From my little experience in oil and gas, I do expect the operator to shamelessly take advantage of anyone they find unknowledgeable. It's how the game is played.
RW,
Great catch on the drilling obligation.
A sliding scale royalty might be an alternative on existing zone only. New zones, same or more royalty.
And, Mr. Barton, there are a lot more than 3 options out there to be evaluated that perhaps they have not considered as of yet.
I'm just a lurker, following this forum to learn more over time. As an objective observer, it is clear that RW has a lot of experience, as does Joe; however, it is pretty standard for Joe to comment directly to RW's advice, which I find very objective and helpful, picking out points to criticize rather than to help the original poster. This immediately distracts from the original poster's inquiry and turns the entire thread into a soap opera. Joe needs to get over himself and only post if he can be of help. I see many disagreements on this forum, but generally they are more productive in nature than what Joe seems bent on. This forum should be for supportive purposes, not to vent some personal baggage. End of rant.
Joe, I attributed the comment that the NDIC O&G Director made to him, and you try to link it to me, your post was a null if you took out everything but what was criticism of the product of my own mind. You Joe were the one who was coming up with the numbers based on 48 wells per spacing, I had already elsewhere said that I had a more conservative view, of course you would not do any homework so you would not know that. I was disappointed in you for your continued lack of doing any homework.
Joe, You asked me once while I was advising someone that they had TF potential as well as Bakken, you said, how did I come up with that? What other formations do you see there? I replied that they already had a TF well, and off hand I could see Red River production. It turns out that the well in question was within 2 miles of over 1 million barrels of oil production from the Red River and Duperow formations.
I asked you if you had any comment and you haven't replied except to follow me around and try to flame my posts. Heavy emphasis on try. You do not do your homework. Point in case, did Savings and Loan really help you as an example in this thread?
I love your example of Savings and Loan, where banks loaned so much money they had no liquidity, and you asked if they were competent or not. In a word, NO. I have come to realize that you subscribe to the new age, it's nobody's fault and if it was not good for me personally, someone must be found to blame, group. My numbers per well I will stand by, they look very similar to numbers put forth by Wade Caldwell and I consider myself to be in good company. As for your extrapolation numbers, those are yours and you receive full credit for them. If you want to show those fantastic numbers you say I said, all you have to do is copy and paste them here with the RW Kennedy said over them, I invite you to do so because I know you can't because they were your words and not mine. I feel sorry for you if you can't realize that you can't put words in peoples mouth and then criticize them for saying them, you have to criticize the words they actually did say. I never mind when you criticize what I actually did say. I would be just as happy if this were over but I will respond as often as necessary. If it helps I will apologize for asking you if you had any comment in that thread where you were monumentally unprepared, come to think of it, it was uncharitable of me. I apologize.
Mineral Joe said:
Ken,
It is a discussion, just so you know in the future I will paste the meaning of what a discussion is as it seems you are not familiar with the word:
"an act or instance of discussing; consideration or examination by argument, comment, etc., especially to explore solutions; informal debate."
When I read where someone post a comment I believe is a bad idea, I don't believe is true, could be damaging, etc, etc, I will post my thoughts which can only be accomplished sometimes by addressing their comment direct. To suggest one smart off to a company for whatever reason is not something I think one should do but perhaps you and definitely another poster does. I also do not believe all companies are dishonest and crooks out to cheat everyone as suggested. If you or anyone gives bad advice or are completely inaccurate I will criticize your bad advice and exaggeration. This all started with the other poster leaving a red ribbon like they are my buddy or something and when I criticized them telling someone that their 10 acres are going to make them like rich and an oil company can make like billions off a quarter section, they threw a fit, got mad at me and said I can not refer to a post past like so many days and then went to my page and posted they are not my friend anymore and said you'd better retract that criticizing me, whoopi. I dislike untrue statements and statements that all people and companies are lying crooks which has been suggested too many times here.
Ken, what does your comment have to do with the original posters question, it sounds like you are not commenting about the discussions question at all and instead doing the same thing you accuse me of doing, I believe the word is hypocrite. And your rant as you call it is not creating the soap opera!
I did not address the person, I addressed their comments that I don't believe in and also made suggestions to the original poster. Should everyone ignore and not comment on such bad advice, nonsense.
Perhaps your right and I should not voice my opinion when I believe someone is totally wrong so I won't post anymore at all and leave it to someone else with more flair to say, "they are wrong".