My mother and uncle both inherited mineral rights. This area is currently being pooled by Continental with a forced pooling order coming very soon. My mother has received numerous offers for leasing and selling. I have her POA and we are considering a participation in the drilling. My thoughts are that since so many want to lease in order to participate that most think there can be a really nice payoff. Does anyone have any more definitive information? What are your thoughts on chances of success of participation and any other thoughts? My uncle wants to lease or sell. Can anyone give me what they actually leased or sold for in the area recently? Thanks!
You better have deep pockets to participate. I would be forced pooled and take a 1/4. Just my opinion.
You are in a unique situation to participate or not. The pooling order has yet to be issued, but they spud the McKinley on 4/8/2016. You do not have to elect to participate until 20 days after the pooling order is issued. The pooling application is still "undetermined" from what I saw at a quick look. You basically get a free look at how the well came in if it gets completed before the Pooling Order is issued. If I were you, I would drive out to location (bring a hard hat) and see if its a good well and ask the field guys you see if they had any "unexpected problems" that could cost more than the proposed AFE.
If you need more time to see how the well is doing then get in contact with a descent corporation commission attorney and have them file a "protest" for the pending pooling application. I don't think that will be necessary though because the well should be completed or close to be completed by now, and you have 20 days from the actual pooling "order" to send in your timely election. Since its still in the "application" phase, I bet you will still have another 30-45 days before the "order" is issued and your election is due. If the rig is still out there, I would be concerned about overruns from the original AFE.
Participating like Tom said can be pretty capital intensive if you have a larger interest, but also gives you some good tax advantages for writing off the tangible and intangible costs associated with drilling the well.
Let me address the dangers of participating, in general, not necessarily, this section or Continental. BTW, this was what I copied off of a prior poster who wanted to know the downside of participating:
This was the answer I gave at that time:
several large dangers possibly loom- 1) The well runs into mechanical problem and the costs are 2-10 times of what was estimated; 2) a pollution problem occurs and you get named in a pollution suit; 3) the operator doesn't market your gas and you have to threaten, cajole and deal with the marketing of your gas; 4) After the initial well is drilled, the operator proposes a six well package that you have to consent to or go non-consent. The cost of the six wells is fairly great. If you go non-consent, then you may have relinquished your interest. 5) the well gets shut-in. I.e., you spent your money and continue to pay joint interest billings every month, but no revenue is coming in; 6) the well runs into mechanical problems, there are cost overruns, the well gets shut-in (so no revenue is coming in) and the operator proposes six more wells in which you have to elect to be in or out.
Mineral Steve suggests that you may be able to get info from the crew. That may work. However, the OCC will not require an operator to divulge production information for a well that has been drilled. In other words, you won't be able to get the OCC to force Continental to disclose production or test info.
Thanks everyone for the replies and your thoughts. We've been offered significant amounts to lease from several landmen so they must think this is going to be a good well. I would be comfortable risking the original amount for participation but don't want a significant risk if the cost could be more than 2 times and the revenue doesn't match or come close. How often does that happen? MIneral Steve, thanks for the suggestion on taking a look at the well since this is basically a free look period. That's a great idea. Do you know anyone that would have more expertise I could hire to do that?
Lance