I inherited fractional 12.5 % of 2 producing gas wells in Parker County that are working interest. Everything else I have is royalty interest. However, I just received a Fed Ex from Devon, wanting to re-drill horizontal wells at a cost of $3,500,000 each. Wondering what production is like on re-drilled wells in Parker County. I have told Devon I would prefer an overriding royalty interest. They agreed to $450/net mineral acre and 3% orri. We are ironing out title issues, as the lease is still operating from 1954, by Merit.
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Interesting, what were the offers from others like?
Good point. No other offers. Think Devon bought out the 50% owner, and is now dealing with the operator, Merit, and me.
I believe you would do considerably better to ride Merit's coattails, or find someone who wants that working interest. To quote my brother who is not always savvy in things concerning the oil business, if it's worth anything, it should be worth more than that.
What happens if they drill one well and stop?
For what it's worth, I would agree with you about not wanting to hold the bag or any part of it on this project. I do believe you owe it to yourself to see if you can find someone less risk adverse who might give substantially more for the opportunity. You don't know until you ask.
How do I find someone? Post on listings here? I do not have a copy of the JOA, and Merit ignores my requests, so I don’t know if I can go non-consent. I don’t want to, but a purchaser might. Or does it not matter, since Devon is going to be the new operator? Appreciate your help?
Camille,
There is much more to evaluating your opportunity than holding an auction. You need to evaluate the potential return on paying your share of the capital cost. Is the reward worth the risk and cost? Measure the potential realized by going non-cnsent and paying the penalty. The Fed EX package must have included an AFE and a prognosis that, among other things, shows the Net Revenue Interest to your Working interest in the new wells.
Once you have evaluated your Working Interest Options, apply the same potentials to taking a lesser risk free royalty. Make sure you know what happens to the revenue from the existing wells in the process.
This could be a slam dunk long term income with measured risk or it could be a conversion away from risk for a smaller ling term income and cash up front. Only you can measure your needs and risk aversion. An ancestor went to great lengths to set you up with this opportunity. Don't squander it with short sightedness and emotion. Get some expert help. It sounds worth it.
Gary,
No, there was no AFE. I just Googled it, because I didn’t know what it was. Just an estimated drilling cost of $3.5 million. I have a .102539 NRI in the GJ Lavender 1 GU according to Merit, but this is what Devon said after doing title work:
“This is an estimate from our reservoir engineer of the percentage of well costs that will be in each unit. Both Merit and Mrs. Potts will each have 25% of the 39% (9.75%) on the 4H well and 25% of 21% (5.25%) on the 5H well. Devon will have the remaining interest in each well. The number will likely change a little bit since the final number is based on a survey starting at the first perforation point then extending to the last perforation point. Until the well is drilled those points are at best an estimate.”
The fed ex was a farmout proposal back in January. At this point in the title work process, Devon says I have 457.15 acres covered by four (4) leases that fall both within the G.J. Lavender Gas Unit and the tracts directly south of said unit. The calculation of the cash offer is 457.15 acres X .25 (25%) interest X $x00.00 per acre. If you wish to keep the existing producing well and sell only the lease interest we are agreeable, say Devon. The current leases are negative to me after Merit’s operating expenses, which makes little sense to me, as to why they still operate them,but on the other hand, this opportunity is only available because they are.
Does any of this make a difference in how you would evaluate the business? Thank you for your time.
Camille Potts
Ms. Potts, I think the part that most catches my eye is the 3% orri. I believe that you could likely do better than that. I think the offer you have is at the bottom and there is plenty of room for upward movement. Merit themselves may be interested in buying you out, if they made an offer greater than Devon made then you would have some idea of the bottom range Devon offered Merit. Just a thought. Merit should not be averse to turning a quick profit, while actually improving their bargaining position at the same time. Or Merit might continue to ignore you, but I doubt it, before there was nothing in it for them, now there might be.