Non-participation wells

Shales Bakken Shale
#1

Comment by Pat Maloney yesterdayDelete Comment

My siblings and I have a total of 16 wells in Williams County, N.D. The first well we participated in and we went with non-participation in 12. The remaining 3 are currently inactive. I have had some discussions with other folks who went with non-participation which of course includes the operator recouping their drilling costs plus a 50% penalty before we can benefit fully from royalties. We signed for non-participation between 2012 and 2014 and have the individual well proposed costs, anywhere from 7 to 14 million. We do not have any idea of how much each well REALLY cost, especially since several wells have other well benefiting from the initial well with horizontal drilling. Can we as mineral owners find out or audit what these wells actually cost to drill. Our payout statements still show most of the NP wells still have millions to recoup which would mean we would be long deceased. Anyone know anything about this? Would appreciate anyone either having this experience themselves or a pro who knows ND mineral law. Pat Maloney pr_maloney4@msn.com

#2

You should be receiving payout statements from your operator. This tells you the actual cost of the well and what the payout is. I also have went non-consent. I am in the same boat for payout. My well was 13.4 million and then of course the price of oil dropped. But I still calculate 15-20 years approx. An audit will cost anywhere from 5 to 10 thousand. I've seen topics on this before on this site. Search Non-Consent.

#3

Hi Kevin,

I do get payout statements each quarter. What our beef is is that on our original information sent to us on each well [AFE breakdown] we got an itemized list of cost for the well. The well with the most discrepancy cost $7,304,670. to drill and that well was completed on 4-15-14. The payout statement on this well states there is still $13,852,916. left for the oil company to collect on 12-31-17. How does that jive? And there are at least 9 more like that; I realize the price of oil collapsed over the last couple of years, but there should not be this much discrepancy. I originally contacted one of the pros on this site who is an attorney but have not received any answer from him. We originally were told we would have to wait approximately 3-4 years to get our share [an additional 84% compared to the 16% we now get]. Thanks for responding; I will dig deeper and perhaps contact the oil company as I have a fair relationship with the landman. I know we can't afford 5-10 thousand. Thanks again.

Pat Maloney

pr_maloney4@msn.com

#4

I looked through my paperwork. Same thing for my well. The AFE stated 7-8 million..it was a 13 million dollar well. Keep in mind they are projected costs on an AFE. Never count on those numbers. Lets hope the price of oil goes up so the payoff is quicker. I am glad I did not participate on mine. If there are multiple parties that have went non-consent on these wells you could split the expense of an audit. Good luck!

#5

Great Info for the Newbie here!

#6

Pat, the operator may be using creative accounting. I currently have a well that I may have to audit the operator on also. I will inquire if the list of other interest owners from the AFE want to join me but if they don't, I have a forensic CPA in the family.

#7

Hi RW,

So good to hear from you again. I'm am currently asking the accounting department to send me the payout statements from the beginning which should tell me why a $7 million well turned into a $16 million well in several months. Something is rotten in Denmark. Does your family member who is a forensic CPA charge a lot? I have not yet called my law firm here in Fargo as have been busy with other pressing stuff as I am readying to retire. Just got my royalty check and at least 5 of our wells have hopelessly underperformed even with oil at 63.00/barrel. These wells are only 4 years old and should be pumping much more oil. VERY much a conundrum, this oil business. Thanks for responding; hope you are well.

Pat Maloney

pr_maloney4@msn.com

#8

Hi Pat, sorry to hear you are having a similar problem. Let me make sure we are on the same page. The well we are discussing is one you are Non Consent in? If that is the case a 7 million dollar well is a $10.5 million dollar well after the penalty of 50% of actual cost of drilling and completing.

As for the forensic CPA cost? They are going to have to go where the records are to examine them which I presume is going to mean Lodging, Food, Expenses, Rental car, travel expenses and their hourly fee.

I'm fairly certain that I will recover most or all of the expense from throwing out charges that are not sufficiently documented.

Pat, I also already know that on my particular well they are charging me the 50% Risk penalty (of drilling and completion cost) on surface equipment, tanks and Pipeline! If necessary I will challenge them to show how they could lose the tanks and pipeline? Losing a wellbore is possible but losing a pipeline? Really? There are many wells that are producing not on a pipeline, a well is complete without a pipeline.

I actually believe that my operator applied the 50% risk penalty twice. I know the drilling went exactly as planned. My $10 million well somehow ballooned into a $14.5 million....and then they applied a 50% risk penalty to that and also to all surface equipment.

#9

Pat, make sure you aren't being double and triple billed for pipelines, tanks and other surface equipment. The law is written in a very specific way on non consent wells. 50% penalty of actual cost of drilling and completing. Many wells produce for a year or more with no pipeline? Are those wells Incomplete? Hardly.

And yet your operator may try to charge you the 50% risk penalty on them.

My brother has received paperwork from Conoco where they wanted to charge him a risk penalty on operating oversight. I wonder if the risk is of the fat cat having a heart attack sitting in his office? Creative accounting, as I mentioned before.