Question.
I am a working interest owner in a unit. The operator whom has a hedge arrangement for oil and casing head gas. My revenue checks are netted less operating expense btthe operator.
Am I entitled to share in the downside and/or benefits of hedging arrangement ? My guess is I am not part of the hedge agreement the operator has. My gut feel is the operator includes my interest as part of its volumes in hedge.
This unit produces over 2,500 BOPD plus significant amount of casing head gas.
Any comments or recommendations?
I have several other legal questions here. Please contact via e-mail.
Try the Search feature in the upper right corner. There have been several threads on this in the past.
No you are not automatically entitled to the benefits of any hedges the Operator might have put on. Nor would you have to suffer the consequences of those same hedges had the market moved the other way. As to whether or not the Operator has included your volumes - your "gut feel" is almost certainly incorrect. Hedging, by definition, is limited to one's own equity volumes. Anything beyond that is speculation and will be expressly prohibited by corporate documents and/or credit facilities. And even if they were "over-hedging", that would be between them and their shareholders/bankers and is none of your concern.
You are certainly free to hedge your own volumes if you want, or you could ask them if they would include you in future hedges, but no way can you come in after the fact and claim the benefits of their hedging. I'm sure if oil was $150/bbl you wouldn't be trying to get in on it.
Wade, There is a great discussion on hedging found in a Memorandum In Support of Motion for Summary Judgment filed by Cimarex Energy Company in a Louisiana case in the United States District Court, Western District of Louisiana, Lafayette Division, Civil Action No. 11-1713. Forget about it being a Louisiana case, the discussion of the differences between hedging and oil and gas royalty payments is the important part. BTW, the appeals court held in favor of Cimarex in an unpublished opinion.
Morris
1152-CimarexMemoranduminSupportofMotionforSummaryJudgment.pdf (1.05 MB)