Could anyone give me pros and cons on participating in the drilling of a well vs taking a bonus instead?
We have a very small acreage in one property (1.85ac) and thought this might allow us to actually see what it is like to participate in a well without investing too much capital.
We have received the Authority for Expenditure thus far.
Interest is located in 18-12-13 in Caddo County. This is a multi unit horizontal well. Approx depth is 15,583 tvd / 23,526 MD (not sure what the tvd / md mean) and includes a 7,396 horizontal lateral. Estimated dry hole cost is $5,503,248 and total completed is $10,356,938.
I see nothing in this original letter that defines spacing. My understanding is that I would need to know that to determine our fractional interest.
The spacing is going to be 640 acres, or even a multi-unit (1280), in all likelihood.
Let me address the dangers of participating, in general, not necessarily, this section. BTW, this was what I copied off of a prior post I posted as to someone else. who wanted to know the downside of participating
Several large dangers possibly loom- 1) The well runs into mechanical problem and the costs are 2-10 times of what was estimated;
2) a pollution problem occurs and you get named in a pollution suit;
3) the operator doesn't market your gas and you have to threaten, cajole and deal with the marketing of your gas;
4) After the initial well is drilled, the operator proposes a six well package that you have to consent to or go non-consent. The cost of the six wells is fairly great. If you go non-consent, then you may have relinquished your interest;
5) the well gets shut-in. this means that you spent your money and continue to pay joint interest billings every month, but no revenue is coming in;
6) the well runs into mechanical problems, there are cost overruns, the well gets shut-in (so no revenue is coming in) and the operator proposes six more wells in which you have to elect to be in or out.
Excellent, excellent reply from Tim Dowd!! Do not participate in drilling of any well. There are too many risks, e.g, you think you are in for only $1,000 and you get a bill for $1,000.000. You want the largest royalty interest % they will give you.
I never put up any of my own money to participate in a well. If you have so much money that you have a hard time finding good ways to invest it, maybe participating makes sense. But generally taking on this extra financial risk is not in the best interest of 99% of mineral owners.
A lease is a much better way to go, especially if it is well-written and contains favorable provisions. Always go for the highest royalty you can get, a one-time bonus is chicken feed compared to royalty.