Is it better to sign a lease and have your mineral rights become Royalty interest at a smaller fraction? Than staying a working interest owner for a bigger share of your mineral rights but have to pay part of the production cost. Tinsley Field MS
Sometimes you can end up with both. It is very hard to give advice without knowing a lot of specifics on this one, but basically it will boil down to the money for you. Can you afford to be a working interest holder? If so, the rewards are greater (potentially), but so are the risks. You will be responsible for a share of ALL expenses, even those a long time from now including reworking, shutting in, or even plugging the wells. And after the production starts to taper off, it may be hard to sell the interest.
My personal suggestion is to form a company that will hold the interest, so you are protected. Because remember, a WI holder is considered a business, and if you are doing that business under your SSN instead of a corporate (corporation, LLC, LP, etc.) even in a debtor state business assets are always up for liquidation. And if you are doing it as yourself under your SSN, that means your home, cars, etc. are able to be liquidated to cover the expenses you would owe on if you were unable to pay. Granted a lot of that risk can be mitigated to the operator, so just ensure the JOA is a good one and do yourself a favor and have an attorney look it over.
Thanks Ryan for replying. The field in question is the Tinsley Field in Mississippi under unification terms and CO2 injection.
At this point the lease agreement is for 3/16ths royalty interest with a signing bonus on a 3-year lease that stays in effect as long as the wells are producing after the three years are up. When I asked the oil company’s attorney if I decided to stay a working interest owner what percentage would I be paid on he said 8/8ths. But I have to call him back to clarify because I am not sure if he thought I was speaking for all of my brothers and sister, or just myself. Any insight would be helpful. And are you an attorney or just an experienced mineral owner? Thanks for your help. Bob
Dear Mr. Dawkins,
It appears that the Tinsley Field is under field wide unitization. For the operators, they are sometimes looking at a 5-6 year payout.
The Field Wide Unitization Agreement typically takes years to negotiate, unless one operator owns the majority of the field. If so, the agreement of the mineral/royalty owners is important to determine their share of the Allocation Formula. All in all, a very tiring process.
Ask for a copy of the Field Wide Unitization agreement and the allocation formula and see if this is something that you have the ability, time and expertise to commit to a project of this magnitude.