Participate or go non-consent

Apparently my grandparents owned this but have passed along with my mother and I am next in line. I got a certified letter for “Final Participation Proposal-Uncommitted/Unleased Interest Owner.

Section 7-T22s-R27E & Section 12-R26E Caveman #402H

It’s says 1267.10 actual gross acre for oil and gas production. The formation is Wolfcamp (pool purple sage; wolfcamp, pool code 98220.

It says elect to participate or non-consent. What does all this mean? I was told by Holland & Hart that I have 0.1871 of an acre which I know that is small.

The letter says I need to pay my invoice in full for my proportionate share of all estimated well costs to be incurred.

The authority for expenditure is two pages I I have no clue what any of this mean. It has AFE grand totals for “drilling” “completion” and “total”.

Can someone please break this down for me. I called Holland and Hart attorney back in 2019 but they really didn’t make me understand anything about things to come.

Thank you in advance for you help.

They probably sent you an AFE for like $8-9m to drill, complete, and equip the well. They have taken all acres in a 1267 acre unit and pooled them. So your share of the well would be 0.1871/1267.1 * $8m = +/- $1200 or so. If you pay that, and participate, then you will get 0.1871/1267.1 = .000148 share of the well revenues, and pay the associated operating costs. If the well is decent you will make some money (beyond what you paid) over time. Do those numbers sound about right?

That is probably a pain in the neck. And IMO there is a good chance they don’t drill the well anytime soon and thus sit on your money for a while. My suggestion would be to call SPC (Santo Pet) @ (575) 736-3250. Tell them you want to speak to someone in the land department. And tell them you would like them to offer you a lease for your acreage under the Caveman #402H. Assuming they are not total jerks, they should do so. They will probably give you a little bonus and then 1/6 or 1/5th royalty. Sign the lease. Then you don’t have to pay anything upfront. You will get 1/6 to 1/5 as much income. And no costs, ever. Its probably a better deal. Or you just do nothing (go non-consent) and pay nothing and likely never receive anything.

In the end 0.187 acres is probably more of a headache than anything else. Its overall value is likely sub $1k in most scenarios. Probably aren’t a lot of really wrong choices.

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Agree with NMoilboy that you should request a royalty lease instead of participating in WI. Typically an operator cannot us NM’s compulsory pooling statutes to pool unleased mineral interests if the owner is willing to lease on reasonable terms.

You could respond to SPC saying that you do not have the budget to participate as a working interest owner but would like to enter into a royalty lease with them with the outlined terms requested and assuming a reasonable bonus for your interest. Then ask for terms including things like: one-quarter royalty (they will likely counter with 1/5th or 1/6th), a no-deductions clause -royalties to be paid at the well-head with nothing deducted for processing, marketing, transportation etc (they may not agree but worth an ask), standard Pugh Clauses (releasing your minerals above/below any drilled MI that is held by production at the end of the lease), and a three-year term. Have them review and get back to you with their thoughts and a reasonable bonus amount and then go from there.

Good luck!